Corruption and competition in procurement

We consider a procurement problem in which the procurement agent is supposed to allocate the realization of a project according to a competitive mechanism that values bids in terms of the proposed price and quality. Potential bidders have private information about their production costs. Since the procurement agent is also in charge of verifying delivered quality, in exchange for a bribe, he can allow an arbitrary firm to be awarded the realization of the project and to produce a quality level lower than that announced. We compute equilibrium corruption and we study the impact on corruption of the competitiveness of the environment, and in particular of: (i) an increase in the number of potential suppliers of the good or service to be procured, and (ii) an increase of competition in the market for procurement agents. We identify the effects that influence equilibrium corruption and show that, contrary to conventional wisdom, corruption may well be increasing in competition.     

The impact of liberalization on bureaucratic corruption

Liberalization increases the number of goods available for consumption within a country. Since bureaucrats value variety, this raises the marginal utility of accepting a bribe. This “benefit effect” is counteracted by an increasing “cost effect” from corruption deterrence activities that arise due to greater international pressure to curb corruption. The interaction of these two effects can lead to a non-monotonic relation between liberalization and corruption. Moreover, pre-commitment to deterrence activities is shown to be more effective in controlling corruption. Empirical evidence supports the existence of a non-monotonic relation between economic openness and corruption among developing countries.     

Incentives and the Sorting of Altruistic Agents into Street‐Level Bureaucracies*

Many street‐level bureaucrats have the dual task of helping some clients, while sanctioning others. We develop a model of a street‐level bureaucracy, and we study the implications of its personnel policy on the self‐selection and allocation decisions of agents who differ in altruism towards clients. When bureaucrats are paid flat wages, they do not sanction, and the most altruistic types sort into bureaucracy. Pay‐for‐performance induces some bureaucrats to sanction, but it necessitates an increase in compensation, which can result in sorting from the top and bottom of the altruism distribution. We also explain why street‐level bureaucrats often experience an overload of clients.     

Dynamic analysis of bribery firms’ environmental tax evasion in an emissions trading market

Using an R&D-based growth model with dual regulation, we analyse how environmental policies influence pollution, corruption, a growth rate, and welfare. Considering that polluting firms bribe bureaucrats to evade paying environmental tax, we find that a stricter environmental tax leads to a decrease in growth rate via a decrease in the permit rent as well as an increase in pollution and corruption per firm and results in worsening households’ welfare and in improving the bureaucrats’ welfare. Thus, tax evasion with corruption improves households’ welfare and worsens the bureaucrats’ welfare. Our findings imply that tax evasion under dual regulation improves social welfare.     

Is corruption a greater burden for registered MSEs? Evidence from Zambia

If corrupt bureaucrats target registered firms, then corruption may discourage registration. Using data from a survey of 4,801 micro and small enterprises (MSEs) in Zambia, this paper looks at whether corruption is a more or less serious problem for registered MSEs. Consistent with earlier studies, the results suggest registered MSEs are more concerned about corruption than unregistered firms are. The paper also proposes two reasons why corruption might affect registered MSEs differently than it affects unregistered firms. We first suggest that registered firms might meet with government officials more often than unregistered firms, giving corrupt officials more opportunities to demand bribes from them, but we also suggest that registered firms might be less vulnerable when officials demand bribes because they are more able to complain about bribe demands. This could offset registered firms' disadvantage because of more frequent meetings. The evidence supports the first, but not the second, hypothesis. Registered firms were more likely to meet with government officials but were not consistently less likely to pay bribes when they did meet with them.     

Can corruption encourage clean technology transfer?

We study the impact of environmental regulation on the transfer of a clean technology where bureaucrats are needed for government intervention. In the absence of corruption, when environmental taxes are low, a technology transfer always takes place and it increases total outputs, but may lead to higher pollution levels. However, when corruption is possible, a firm with a dirty technology may choose to bribe a corruptible bureaucrat who will underreport the actual level of emissions, thereby hindering the transfer of clean technology. We show that a less strict anticorruption policy may lead to more bribing, but encourage technology transfers. Moreover, an environment-oriented government would set a deterrent environmental tax to reduce pollution, while an output-oriented government would set a minimum tax rate to eliminate corruption and induce technology transfers. However, a balanced government would tolerate corruption when the cost of bribing is low and the clean technology is sufficiently efficient.     

Competition in bureaucracy and corruption

This paper studies the consequences of introducing competition between bureaucrats. Firms are supposed to invest into eliminating negative externalities of production, while bureaucrats administer the process by issuing licences. Some bureaucrats are corrupt, that is, they issue a licence to any firm in exchange for a bribe. The competition regime is found to create more ex ante incentives for firms to invest, while the monopoly regime is better at implementing ex post allocation, that is, distributing the licences given the firms' investment decisions. Additional results on the effect of punishments and bureaucrats' rotation are provided.     

Bribing and signaling in second price auctions

We examine whether a two-bidder, second-price auction for a single good (with private, independent values) is immune to a simple form of collusion, where one bidder may bribe the other to commit to stay away from the auction (i.e. submit a bid of zero). In either of two cases—where the potential bribe is fixed or allowed to vary—the only robust equilibria involve bribing. In the fixed-bribe case, there is a unique such equilibrium. In the variable bribes case, all robust equilibria involve low briber-types revealing themselves through the amount they offer, while all high types offer the same bribe; only one such equilibrium is continuous. Bribing in all cases causes inefficiency.     

Distribution and development in a model of misgovernance

This paper presents an analysis of bureaucratic corruption, income inequality and economic development. The analysis is based on a dynamic general equilibrium model in which bureaucrats are appointed by the government to implement a redistributive programme of taxes and subsidies designed to benefit the poor. Corruption is reflected in bribery and tax evasion as bureaucrats conspire with the rich in providing false information to the government. In accordance with empirical evidence, the model predicts a positive relationship between corruption and inequality, and a negative relationship between corruption and development.     

Is growth corrupted or bureaucratic? Panel evidence from the enlarged EU

This article aims at analysing the issue of conditional convergence in the new enlarged European Union (EU) over the period 1995–2012 by means of panel data techniques. We examined the issue of conditional convergence in the enlarged EU giving particular attention to the effects of corruption and bureaucracy on growth controlling for a widely used set of explanatory variables such as investment (domestic and foreign), human capital formation, inflation, general government final consumption and trade openness. Furthermore, we examine if growth responds differently to corruption and bureaucracy in the new EU members by means of two group-specific interaction variables to capture possible different responses to corruption and bureaucracy. The analysis reveals evidence of conditional convergence in the enlarged EU, with investment share, foreign direct investment, human capital, and country openness appearing as robust growth drivers. In contrast, inflation and government consumption rather hamper growth. Furthermore, the effects of corruption and bureaucracy on growth seem to differ across old and new EU members.     

Corruption and positive selection in privatization

We consider the supply of a public good based on a publicly owned facility. The Government has a choice between provision in-house and privatizing the facility and then outsourcing the production. In particular, we focus on corruption in the decision to privatize and on its effect on social welfare when there is asymmetric information on the public and private manager's efficiency. Our analysis shows that a corrupt Government, that chooses to privatize only in exchange for a bribe, makes a positive selection on the private firm's efficiency and, thus, may have a positive effect on social welfare.     

BUREAUCRACY AND TIME CONSISTENCY*

We construct a model that takes seriously the role of bureaucracy in the characterization of time-consistent policies. We argue that if the possibilities for governments to reduce the size of bureaucracy are limited, bureaucracy can be used as a means for influencing future governments. We show that the political process has implications for the size and growth of bureaucracy. Parties in power may hire bureaucrats of the opposite political color. This is a part of the time-consistent policy. Our model also gives an explanation for the growth of bureaucracy. This is a consequence of the time-consistent policies, i.e. policies that partially tie the hands of future governments. We also show that if public sector production is inefficient, the public sector will be too large in the long run. In the short run it may be too small.     

Corruption in a neoclassical growth model with a non-convex production function

In this article, we analyze the bureaucrats’ corruption problem in a simple neoclassical growth model with a non-convex production function. In this model, we consider direct relations between product (income) taxation and corruption, and between corruption and public goods provision. As the main result, we show that the optimal consumption growth path in this economy is higher in a non-corrupt environment than in a corrupt environment and the higher the proportion of corrupt bureaucrats, the higher the cost of corruption to society.     

Corruption,competition and democracy

This paper presents a model of the interaction between corrupt government officials and industrial firms to show that corruption is antithetical to competition. It is hypothesized that a government agent that controls access to a formal market has a self-interest in demanding a bribe payment that serves to limit the number of firms. This corrupt official will also be subject to a detection technology that is a function of the amount of the bribe payment and the number of firms that pay it. Under quite normal assumptions about the shape of the graph of the detection function, multiple equilibria can arise where one equilibrium is characterized by high corruption and low competition, and another is characterized by low corruption and high competition. Some suggestive empirical evidence is presented that supports the main hypothesis that competition and corruption are negatively related.     

Interest Group Lobbying and the Delegation of Policy Authority

In a signalling model of lobbying the politicians' decision whether to delegate policy authority and an interest group's choice between lobbying politicians or bureaucrats are investigated. Only bureaucrats are able to assess policy-relevant information coming from the interest group, but their interests may differ from those of politicians. In equilibrium politicians weigh the benefits of an informed policy decision against bureaucratic drift. We obtain that delegation occurs only when the bureaucracy is not too much biased and when the stakes of the interest group are not too high . Still, politicians sometimes prefer a biased bureaucracy and the interest group to have a larger stake. The model also predicts that interest groups typically lobby politicians to further delegation.     

Bribery,inefficiency, and bureaucratic delay

We examine bribery in a dynamic setting with a partially honest bureaucracy. The presence of honest officials lowers the bribe that a corrupt official can extract from efficient applicants. Consequently, efficient applicants may face delays in receiving licenses, or may never receive licenses, as inefficient applicants are serviced ahead of them. An increase in the proportion of honest officials, while directly increasing the incidence of socially optimal decisions, can also induce greater inefficiencies (misallocation and delay) from corrupt officials. As a result, social welfare may be non-monotonic in the proportion of honest officials, and small differences in monitoring costs may lead to very different levels of corruption. Competition between officials can hurt efficiency; its desirability depends on the prevalence of applicants' ability to pay bribes.     

Decentralized Bribery and Market Participation

I propose a bribery model that examines decentralized bureaucratic decision‐making. There are multiple stable equilibria. High levels of bribery reduce an economy's productivity because corruption suppresses small business, and reduces the total graft, even though the size of an individual bribe might increase. Decentralization prevents movement towards a Pareto‐dominant equilibrium. Anticorruption efforts, even temporary ones, might be useful to improve participation, if they lower the bribe levels demanded and thus encourage small businesses to participate.     

Procurement auctions with ex-ante endogenous bribery

Corruption is a prevalent phenomenon in various procurement auctions. This paper explores a pattern of bribery between an auctioneer and a favored bidder, and also investigates the regulation scheme of buyer. In the model, the favored bidder is allowed to submit two bids simultaneously with the advantageous one to be announced; auctioneer decides the share of the difference between two bids which is the bribe transfer. The analysis shows that, the favored bidder does not participate in the corruption if his cost exceeds a threshold; otherwise he submits two bids whose difference is decreasing in the share. The corruption benefits both the auctioneer and the favored bidder but harms other bidders. The bribery endogenously leads to allocation inefficiency with a probability decreasing in the bribe share. Specifically, with two uniformly distributed bidders, we examine how the auctioneer optimizes the bribe share and how the buyer regulates the corruption. We find that, by driving the auctioneer to charge a higher bribe share that is less attractive for the favored bidder, severer regulation tends to reduce the probability of corruption. A buyer who adopts extremely severe regulation can exclude the corruption and achieve maximum social welfare, while a buyer who aims to maximize his own profit should tolerate some degree of the corruption.     

Does corruption hinder investment? Evidence from Russian regions

This paper investigates the relationship between corruption and fixed capital investment in the setting of a corrupt country. Using different measures of corruption – registered cases of bribe taking and incidents of experienced corruption by the population – we find a negative relationship between investment and corruption. We then address the problem of endogeneity of corruption using an instrumental variables approach: when corruption is instrumented with freedom of the press and violations of journalists' rights, we find an even bigger negative effect. Disaggregating investment by ownership-type shows that only private investment is affected by corruption, but not investment made by state-owned companies. The negative effect is larger for companies with full or partial foreign ownership. Additionally, we look at the relationship between corruption and foreign direct investment (FDI): similar to the investment in fixed capital, we find a negative relationship; however, its statistical significance varies across specifications with different data sources for FDI and different corruption measures.     

Socio-economic typologies of bureaucratic corruption and implications

Corruption all over the world is an ancient, but it seems very topical too, concern in politics and in the media. This paper investigates spatial and dynamic aspects of corruption using cellular automata. Although cellular automata are very simple, deterministic machines and thus crude approximations of real, economic situations, they are capable of describing self organization and complex patterns (of corruption). It is shown that neither social pressure nor pure economic incentives allow for complex patterns, although social pressure may lead to clusters of corrupt and uncorrupt segments within a bureaucracy. However, blending both above characteristics is capable explaining complex behavior. Extending the concept of cellular automata through mixing rules – across space (= bureaucrats) and time (accounting for global effects) – does not affect the fundamental properties.