Abstract: We examine whether rent-seeking incentives explain a central planner’s decision to reorganise administrative units. In a two-stage group contest, risk-neutral administrative units compete for shares of a perfectly divisible public fund, with inter-unit and intra-unit contests occurring in Stages 1 and 2, respectively. We identify the conditions under which the planner prefers reorganisation and analyse its impact on aggregate and stage-wise rent accumulation. We show that total rent accumulation depends on the interplay between changes in fractionalisation, population inequality, and the scale effect from changes in the total population of active units following a reorganisation. While a proliferatory reorganisation (i.e., increasing the number of administrative units), when all administrative units remain active, increases the planner’s rent accumulation, it can overturn the loss in welfare under certain conditions. Furthermore, these results continue to hold in the scenario where some units become inactive, under certain conditions on average population per active administrative unit.

Abstract: This paper examines the implications of different forms of corruption, i.e., grand corruption, petty corruption, and cut-money culture, on the formulation and enforcement of regulatory policies. Focusing on quota regulation in the context of natural resource extraction, it demonstrates the following. In the absence of cut-money culture, petty corruption never occurs in equilibrium, irrespective of whether the policymaker is honest or corrupt. However, when the policymaker is corrupt, the threat of petty corruption leaves no room for grand corruption, unless environmental damage due to extraction is sufficiently discounted, in which case grand corruption occurs. In contrast, the presence of cut-money culture induces corruption, either petty or both grand and petty, in equilibrium. Cut-money culture may reduce the equilibrium quota from the ‘no petty corruption enforcing quota’, however, whenever this occurs, total extraction and environmental damage rise, and welfare declines. Our results have important implications for designing corruption control mechanisms and governing natural resource extraction.