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How do Penalties work under Corruption

Student: Artur Petrosyan

Supervisor: Aleksey Y. Oshchepkov

Faculty: Faculty of Economic Sciences

Educational Programme: Economics (Bachelor)

Year of Graduation: 2016

In this paper, we analyze how the penalty system works under corruption. We propose a theoretical model that describes the behavior of a "citizen" - to break or not to break the law - with the possibility to pay a bribe. Our model also describes the behavior of "Inspector", who is maximizing his utility. We also consider the budget constraint of "citizen" - the limitations of cash. We find that if bribe sensitive to changes in fines, then fines work properly. In other case, fines become ineffective due to existence of corruption. We also find that increase in probability of being caught deter not only violations, but also corruption.

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