Corruption and the Optimal Use of Non-monetary Sanctions

Abstract

This article presents a model of non-monetary sanctions with corruption. It is a well-known result in the law enforcement literature that in the absence of corruption, non-monetary sanctions, such as imprisonment, should be imposed infrequently. We show that, in the presence of corruption, it is still sometimes optimal to use non-monetary sanctions. In fact, it may be optimal to use them more often. Corruption transforms a non-monetary sanction into a monetary bribe. While this reduces deterrence, it also lowers the social cost of non-monetary sanctions, because they are seldom actually imposed. In addition, non-monetary sanctions can be beneficial in a corrupt environment, because they allow officials to extract higher bribes, thus restoring some deterrence.