Tariffs, Quotas, and the Corrupt Purchasing of Inappropriate Technology

Abstract

This paper develops a simple model where a manager of a firm in a Less-Developed Country (LDC) has the choice of whether or not to purchase an inappropriate technology in_x000D_ return for a bribe (kick-back) from the supplier of the technology. Provided that the manager achieves some minimum level of profit, the manager has a positive probability of not getting caught taking the bribe. The actual size of the bribe is determined by Nash axiomatic bargaining between the manager and the supplier. An interesting and not immediately obvious result is that, under certain circumstances, if the protective instrument is changed from a quota to an equivalent tariff the manager will switch from not acting corruptly to acting corruptly.