Journal Article On Putty-Clay Get access Christopher Bliss Christopher Bliss Christ's College, Cambridge Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 35, Issue 2, April 1968, Pages 105–132, https://doi.org/10.2307/2296542 Published: 01 April 1968

Corrupt agents (officials or gangsters) exact money from firms. Corruption affects the number of firms in a free‐entry equilibrium. The degree of deep competition in the economy increases with lower overhead costs relative to profits and with a tendency toward similar cost structures. Increases in competition may not lower corruption. The model explains why a rational corrupt agent may extinguish the source of his bribe income by causing a firm to exit. Assessing the welfare effect of corruption is complicated by the fact that exit caused by corruption does not necessarily reduce social welfare.