Centralization of Bribery - 1

A. Centralization of Bribery

Sometimes the bribee cannot deliver
not because he wants to cheat, but because
there is a multiple veto power
system in operation, which makes centralized
collection of bribes in exchange
of guaranteed favors very difficult. One
high official in New Delhi is reported to
have told a friend : “if you want me to

move a file faster, I am not sure if I can
help you; but if you want me to stop a
file I can do it immediately.” This ability
to “stop a file” at multiple points (a
system often installed to keep corrupt
officials in check) may result in increasing
the inefficiency as well as the rate
of bribes. In general centralized corruption
has less adverse consequences for
efficiency than decentralized bribe-taking,
because in the former case the
bribee will internalize some of the distortionary
effects of corruption (assuming
similar powers at all levels to determine
the overall rents in the system).
Shleifer and Vishny (1993) illustrate
this point with an elementary model
comparing a case of independent monopolists
(where different public agencies
provide complementary government
goods or services independently)
with that of a joint monopolist agency
providing the same goods or services.
Suppose a customer needs two permits
or two complementary inputs from two
different agencies in the former case.
Each agency as an independent monopolist
will take the other agency’s sales as
given and so the bureaucrat in charge of
it will set the bribe-inclusive price in
such a way that marginal revenue is
equal to the marginal cost, the bribe
per unit of sale being the difference between
the price and the monopolist’s
marginal cost (i.e., the official price of
the good supplied). The joint monopolist,
on the other hand, takes into account
the effect of an extra unit sold on
the sales of the complementary good
and thus on the revenue from bribes
from the other source as well, so that in
equilibrium the marginal revenue in the
supply of each good is less than the
marginal cost. Thus the per unit bribe is
higher and the supply of each good
lower in the independent monopolist

case than in the case of collusion. Of
course, the aggregate revenue from

bribes is larger in the latter case, but
the customer gets a larger supply of
both inputs. The problem is made much
worse when complementarity can be artificially
created (just when you think
you have bribed two agencies to get
the required two permits, another independent
monopolist comes along and
tells you that you need a third permit
from him to get your business in
place) and corruption opportunities stimulate
the entry of permit-dispensers
armed with new regulations. Free entry
in this game allows the officials to
“overfish” in the “commons” or the
rental havens.