Optimal government regulations and red tape in an economy with corruption
We study an economy where agents are heterogeneous in entrepreneurial ability, and may decide to become workers or entrepreneurs. The government is motivated by a production externality to impose regulations on entrepreneurship, and sets a level of red tape administered by public officials-to test regulation compliance. In an environment where some officials are corrupt, we study what are the optimal levels of regulations and red tape, and to what extent such policies reduce the welfare losses...[Show more]
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