Strategic Analysis of Petty Corruption with an Entrepreneur and Multiple Bureaucrats

Hu Lin () and Oak Mandar
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Hu Lin: Jinhe Center for Economic Research, Xi’an Jiaotong University, Xi’an, China
Oak Mandar: School of Economics, University of Adelaide, Adelaide, Australia

The B.E. Journal of Economic Analysis & Policy, 2023, vol. 23, issue 4, 879-895

Abstract: We consider a game of petty corruption between entrepreneurs and multiple bureaucrats. The potential value of the entrepreneur’s project is stochastic and private, and it can be realized only if the project is approved by all the bureaucrats. The bureaucrats simultaneously make take-it-or-leave-it demands of bribes in exchange for approving the project. The entrepreneur can either pay the required bribes or seek costly legal recourse against non-approval. The paper shows that there are multiple equilibria in the one-shot game as well as in the dynamic version of the game in which a sequence of entrepreneurs applies to the set of bureaucrats to seek project approvals. We then characterize a compelling class of equilibria, namely the bribe-income-maximizing-equilibrium, and show that total bribe exchanged under such equilibria is non-monotonic in the cost of legal recourse. Hence, a small/incremental reduction to the cost of appeal is either ineffective or can backfire, i.e. increase the amount of corruption.

Keywords: corruption; legal recourse; repeated games (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejeap-2022-0082

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