Corruption and market reform

Abstract

Market reforms in developing and transition economies have sometimes failed to deliver the desired welfare effects. Corruption may be an important reason for the inefficiency of market reforms, such as privatization campaigns. The present paper demonstrates how corruption can affect the choice of buyer of a public asset. Our main result is that market reform in highly corrupt societies is likely to result in less competition and less economic efficiency than reform in less corrupt societies. We also demonstrate that the level of bribes in the sale of public assets does not necessarily increase in the government’s emphasis on bribes.