Theoretical considerations on corruption and an essay on international trade

My dissertation consists of three essays in two different areas. My first essay explores corruption within the shadow economy in two ways. First I examine the role of incentives on corruption and on the size of the shadow economy. Second, I look into the industrial organization of corruption; specifically I investigate whether centralizing the bureaucratic system always leads to a decrease in corruption. Using a game theoretical model that portrays two sectors of the economy (formal and shadow economy), and opportunistic bureaucrats in both sectors, I show that increasing incentives to honesty among monitoring agents in the informal sector does not always lead to a decrease in the size of the shadow economy. Furthermore, I show whenever corruption is present in the informal sector total centralization of government agencies may increase, rather than decrease the overall level of corruption. In my second essay I present a theoretical model that explains the empirical findings of a negative relationship between female participation in the government and corruption. Specifically, I propose that although psychic costs for both male and female do not intrinsically differ from one another, the cut off values of these costs are different for each gender, arise endogenously, and are related to the proportion of female participation in government agencies. Hence, females behave more honestly than males do, not because they are naturally prone to it but because they cannot afford to be corrupt if they are minority. In that sense, the total density of corruption is non-monotonic in the proportion of female participation in government agencies. Finally, in my third essay, I test some further empirical implications of the Alchian-Allen Effect. In particular, I study the relation between the Alchian-Allen effect and product heterogeneity within industries; I show---both theoretically and empirically---that for those industries with higher product heterogeneity, the Alchian-Allen effect is stronger. I then test the relationship between the Alchian-Allen effect and demand for imports, and the number of varieties in a product mix. The tests show that higher Alchian-Allen effects make these two mentioned variables less sensitive to changes in freight.