Abstract
Anecdotal evidence suggests that intermediaries who help citizens and businesses navigate the complexities of government regulatory procedures can also facilitate bribery. Moreover, it has been argued that traditional methods of detecting bribery may be ineffective in the presence of intermediaries. This paper investigates whether asymmetric punishment (viz., punishing bribe taking, but not giving) can reduce bribery when both intermediated as well direct corruption are possible and the complexity of the regulatory process is endogenous. We show that if asymmetric punishment can induce whistle blowing, then a switch from symmetric to asymmetric punishment can result in fewer bribery transactions, a reduction in regulatory complexity, and an increase in clients' gain from regulatory approvals.
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