Bribes Relative to Rents-2

They use a coordination game among
wealth-maximizing legislators to show
that, if the latter cannot coordinate
their actions, they may supply privateinterest
statutes for bribes even less
than the costs they incur. Only when
they can enforce agreements with one
another, solving a prisoner’s dilemma
problem, will they come close to collecting
the full benefits of the statutes
they pass. Rasmusen and Ramsayer

(1994) have a simple example to illustrate
the difference between a democratic
and an autocratic government in
this context. Suppose that private-interest
statute S14 would provide a benefit
of 14 for a lobbyist and would cost an
autocratic government 50 because of,
say, an increased probability of public
discontent or even rebellion. The autocrat
will supply this statute only if offered
at least 50, which the lobbyist will
be unwilling to offer, so S14 will not
pass. Suppose that a second statute,
S80, would cost the autocrat 50 but
benefit the lobbyist by 80; the autocrat
will supply this statute for a bribe anywhere
between 50 and 80.
Now take a democracy where five
legislators vote on statutes S14 and S80.
For each statute, each legislator loses 5
by voting “yes” when the others vote
“no,” but 10 if the statute passes. The
government thus loses (again in terms
of public discontent) a total of 50 if a
statute passes, exactly the same cost as
in the case of the autocratic government.
Take first the statute S14. If each
legislator thinks that the others will
vote “no,” then all voting “no” will be
the equilibrium. The lobbyist could
overcome these expectations by offering
a bribe of 5 to three legislators, but that
is too costly for him for a statute worth
14. But if each legislator thinks the others
will vote “yes,” then each may as
well vote “yes” for an infinitesimally
small bribe, because he will lose 10, no
matter how he votes (so that his marginal
cost of voting “yes” is 0). Thus a
democratic government may sell a private-
interest statute at below cost when
the autocratic government would not.
Consider now the statute S80. Here too
there is an equilibrium in which the
statute passes in the democratic legislature
with an infinitesimally small bribe,
when the autocrat would do it only for a
large bribe.
It is often said that autocratic rulers
are more corrupt than democratic ones
because the former do not have to
worry about re-election. (This is not
quite true as elections have become
very expensive, and to dispense favors
in exchange for campaign contributions
is a major source fof corruption in
democratic regimes.) In the example
above, the cost of corruption is deliberately
kept the same for both autocratic
and democratic governments, and yet
the equilibrium bribe amount is larger
under the former. The essential problem
is due to an externality that each
democratic legislator’s vote potentially
imposes on every other legislator, when
they cannot coordinate their votes to
demand a bribe which compensates
them for that externality. In some actual
democratic polities, of course, such
coordination problems are reduced by
committee systems, disciplined factions
and party political machines.6 It is reported
that in the past few decades Japan’s
Liberal Democratic Party (particularly
its so-called Policy Affairs
Research Council, where important
policies were made and payoffs were
coordinated behind closed doors) has
been quite successful in centralizing
bribery and raking off billions of dollars’
worth in the process.