Who Must Pay Bribes and How Much? Evidence from a Cross Section of Firms

Abstract

This paper uses a unique data set on corruption containing quantitative information on bribe payments of Ugandan firms. The data have two striking features: not all firms report that they need to pay bribes, and there is considerable variation in reported graft across firms facing similar institutions/policies. We propose an explanation for these patterns, based on differences in control rights and bargaining strength across firms. Consistent with the control rights/bargaining hypotheses, we find that the incidence of corruption can be explained by the variation in policies/regulations across industries. How much must bribe-paying firms pay? Combining the quantitative data on corruption with detailed financial information from the surveyed firms, we show that firms' “ability to pay” and firms' “refusal power” can explain a large part of the variation in bribes across graft-reporting firms. These results suggest that public officials act as price (bribe) discriminators, and that prices of public services are partly determined in order to extract bribes.