The Welfare Effects of Consumers' Reports of Bribery

J. Atsu Amegashie

Journal of Economics & Management Strategy, 2016, vol. 25, issue 2, 516-534

Abstract: A primary means of bureaucratic oversight is consumer complaints. Yet this important control mechanism has received very little attention in the literature on corruption. I study a signaling game of corruption in which uninformed consumers require a government service from informed officials. A victim of corruption can report corrupt officials whose supervisors are negligent or conscientious but an official's type is his private information. I find that social welfare may be nonmonotonic in the proportion of conscientious supervisors. Several examples show that an increase in the proportion of conscientious supervisors decreases social welfare if the mass of conscientious supervisors is below a critical level. I find that this perverse result does not hold if (a) the bribe is very large, or (b) bribe‐giving is legalized. I also find that there is an equilibrium in which no one reports corruption.

Date: 2016
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