Abstract
AbstractThe control of bribery is a policy objective in many developing countries. It has been argued that asymmetric punishments could reduce bribery by incentivizing whistle‐blowing. This paper investigates the role played by asymmetric punishment in a setting where bribe size is determined by Nash bargaining, detection is costly, and detection rates are set endogenously. First, if whistle‐blowing is infeasible, the symmetry properties of punishment are irrelevant to bribery deterrence but not to bribe size. Bribery disappears if expected penalties are sufficiently high; otherwise, bribe sizes rise as expected penalties rise. Second, when the bribe‐giver may whistle‐blow, a switch from symmetric to asymmetric punishment eliminates bribery only if whistle‐blowing is cheap and the stakes are low. When bribery persists, multiple bribe sizes could survive in equilibrium. The paper derives parameter values under which each of these outcomes occurs, and discusses implications for welfare and the design of policy.
Highlights
Corruption is a major concern in several countries
In countries where the marginal cost of improved detection is high, possibly the same countries where harassment bribes are a problem in the ...rst place, bribery will survive under asymmetric punishment
Assume the o¢ cial has two choices–deliver the license for free, or make license delivery conditional on a bribe being paid. If he chooses the latter, he and the entrepreneur must bargain over the bribe size, and if they are unable to agree, no license is delivered
Summary
Corruption is a major concern in several countries. One reason it is di¢ cult to control is that those involved have an incentive to collude to prevent detection. We show that asymmetric punishment increases the incentives for the citizen to whistle-blow Whether this leads to the elimination of bribery, as in Basu (2011), or to an exacerbation of the problem–in which bribery persists and the bribe size rises to account for the greater probability of detection–depends on the e¤ectiveness of law enforcement agencies in detecting corruption. In countries where the marginal cost of improved detection is high, possibly the same countries where harassment bribes are a problem in the ...rst place, bribery will survive under asymmetric punishment When this is the case, bribe size might rise to account for the fact that the o¢ cial is more likely to be penalized due to the entrepreneur’s e¤orts to report. It is hoped that by bringing dispassionate analysis to bear on this emotive subject, we are able to shed some light on what is a practical matter of policy in law and economics
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