Effects of Corruption and Incompetence in the Quality Monitoring Process

Abstract

In many emerging economies there is a lot of corruption and sheer incompetence in the quality monitoring process and this often leads to poor quality of infrastructure and high prices. In chapter 3 we analyze the impact of such corruption and incompetence on welfare and market quality. We construct two models to demonstrate the following: (i) In the first model we show how corruption in quality monitoring process leads to higher prices, lower quality, lower total welfare and market quality. (ii) In the second model we demonstrate how sheer ‘incompetence’ in the quality monitoring process leads to higher prices. While total welfare does not change with such incompetence, the consumers are worse off and the producers are better off. This means ‘incompetence’ transfers surplus from the consumers to the producers.