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Journal of Law, Economics, and Organization Advance Access originally published online on June 5, 2008
Journal of Law, Economics, and Organization 2009 25(2):442-471; doi:10.1093/jleo/ewn009
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© The Author 2008. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Corruption, Extortion, and the Boundaries of the Law

Svetlana Andrianova

University of Leicester

Nicolas Melissas*

Instituto Tecnológico Autónomo de México

* Centro de Investigación Económica, Instituto Tecnológico Autónomo de México, Camino a Santa Teresa 930, México D.F. 10700, Mexico. Email: nmelissas{at}itam.mx.

We consider a setup in which a principal must decide whether or not to legalize a socially undesirable activity. The law is enforced by a monitor who may be bribed to conceal evidence of the offense and who may also engage in extortionary practices. The principal may legalize the activity even if it is a very harmful one. The principal may also declare the activity illegal knowing that the monitor will abuse the law to extract bribes out of innocent people. Our model offers a novel rationale for legalizing possession and consumption of drugs while continuing to prosecute drug dealers. (JEL D82, L22, K4)


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