Optimal antibribery policy when bribery type is endogenous

Fuhai HONG*, Zhendong YIN

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)

Abstract

This paper analyzes the optimal allocation of antibribery resources when bribery type is endogenously determined by corrupt bureaucrats. A firm is supposed to invest to get licenses for production from bureaucrats. The bureaucrat commits to a bribes schedule that specifies bribes demanded from compliant firms (therefore, engaging in extortion) and noncompliant firms (engaging in collusion) as a precondition of granting the license. The allocation of antibribery resources determines the probability that each type of bribery is detected and prosecuted and thus affects the bureaucrat's choice of bribes schedule and the equilibrium bribery type. We find that the government should prioritize combating collusion when the resources are sufficiently scarce, should abstain from combating extortion after it wipes out collusion when the resources are less scarce, and should eradicate both types of bribery when the resources are sufficiently abundant. When there are multiple investment dimensions, however, there exists a special case where the government targets both types of bribery when the resources are at some intermediate level.
Original languageEnglish
Pages (from-to)1074-1106
Number of pages33
JournalJournal of Public Economic Theory
Volume21
Issue number6
Early online date7 Oct 2019
DOIs
Publication statusPublished - Dec 2019

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Bibliographical note

We thank the editor, two anonymous referees and seminar participants at Beijing Normal University for helpful comments.

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