quality. They will drop out first if quality deteriorates and there is a non- deteriorated competing
product available; be it at a higher price.
yThey are not the same as marginal customers who care about price. The marginal customer will
leave as soon as there is a lower price.
yHaving the customers who care deeply about the quality to stay put and voice their concerns,
should be a priority for corporations and institutions.
yAs a result, as the quality deteriorates, and there is no substitute for high quality goods, the rich
customers will stay put complain a lot.
yIf nothing is done, then there the strongest part of the chain is the high-quality and the low-quality
goods or services. ThatÆs because the bottom and the top are a lead for a quick exit.
yIf quality declines, than price inclines will not be far behind.
yThe role of voice is important in protecting the quality of life.
yIf the notion that a combination of exit and voice is needed for the best results, is accepted. The
mechanism may rely too much on exit at the lower end of the quality scale, but suffer from a
deficiency of exit at the upper end.
The New Economics of Corruption: a Survey and some New Results
yEverybody is affected by corruption, yet economists are vague in coming up with a solution.
yThe lack of data on corruption is problematic because it doesnÆt narrow the number of theories
out there about corruption.
yThere are three kinds of proposals on order to curb corruption: the lawyerÆs approach, the
businessmanÆs approach, and the economistÆs approach.
yThis approach suggests in the following order, produce tougher laws and enforcement, paying
higher wages to bureaucrats. And increasing the level of competition in the economy.
ySome successful countries like Honk Kong and Singapore uses the lawyers and the businessman
approach, however, the level of competition and liberties are low. The power given to anti-corruption
agencies works on the principle of Äguilty until proven innocentÆ which is hard to apply in order
countries? Thus, there must be distinguish between the lawyerÆs and the businessmanÆs approach.
yData shows that there is a strong negative correlation between corruption and the level of
development of a country.
yThere is an argument that corruption may serve a useful purpose in social welfare. However,
Mauro finds that corruption lowers investment, thereby reducing growth. Furthermore, Mauro finds
that the more efficiency the bureaucrats, the more investments are made.
yThe Public wishes to maximize social welfare; the bureaucratÆs wishes to maximize utility; and
the firmsÆ wishes to maximize profits net of bribes.
yThe public setup bureaucrats to achieve that goal; but the bureaucrats usually have an agenda of
their own; and they affect how much money the firm makes.
yThus, the public must provide the bureaucrats with the appropriate incentive if its goals are to be
yThe three types of incentives are monitoring, letting bureaucrats quit, and amount of