Clientelism,corruption, and the allocation of resources

Corruption has been shown to have more serious effects upon allocation than simply drawing resources into rent-seeking activities. If politicians anticipate gains from corruption in the policy making process, sub-optimal policies will be the result. Typical examples include excessive nationalization of industry, excessive regulation of the private sector through practices such as licensing and quotas with a view to extract the rent created by these measures. In addition, further misallocation will result at the execution state. It has been shown that the revisionists were wrong in assuming that licenses and contracts will be allocated to the most efficient producers, that rent will be eliminated in government employment, and that corruption increases the efficiency of the bureaucracy. Moreover, differential access to government services leads to additional allocative losses.