Cronyism and Corruption in India : A Game Theoretic Analysis

In this paper, we analyze some aspects of cronyism and corruption in India. We develop a three-stage game-theoretic model where the ruling political party and a capitalist interact with each other. The ruling party, in return of a donation from the capitalist, sets a policy that favors the latter. Our model leads to some interesting results of which the most striking is that only the political party gains with increase in cronyism and corruption. The society as a whole suffers (total welfare goes down), and even the capitalist is worse off (profit declines). Despite the decrease in profits, the capitalist finds it worthwhile to take part in the game only because it would have been worse off even further if it had not taken part in the game. We come to the broad conclusion that a strong corrupt political party is necessarily detrimental to all sections of the population