Journal of Mathematical Finance

Volume 6, Issue 5 (November 2016)

ISSN Print: 2162-2434   ISSN Online: 2162-2442

Google-based Impact Factor: 0.96  Citations  h5-index & Ranking

The Valuation of Corruption

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DOI: 10.4236/jmf.2016.65051    1,269 Downloads   2,127 Views  
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ABSTRACT

Unlike the current measures in the literature, where corruption is constructed as an index, this paper provides a formula for quantifying corruption. By using option pricing techniques, the paper shows that the monetary value of a corrupt activity is equivalent to a regular bond and an embedded European call option. This formula is very important because it could be used to gauge the level resources lost to corrupt activities, and also to determine the level of “tax” that could be levied at corrupt-government officials. Results in the paper show that a government committed to reducing corruption should institute measures that will reduce the level and the volatility of the price of the goods in the parallel markets. The paper also finds that a government could reduce corruption by cutting interest rates, which would spur growth and render corruption as an unprofitable exercise.

Cite this paper

Atta-Mensah, J. (2016) The Valuation of Corruption. Journal of Mathematical Finance, 6, 728-746. doi: 10.4236/jmf.2016.65051.

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