Andvig and Karl O. Moene (1990) in
their model assume, as in Cadot (1987),
that the expected punishment for corruption
when detected declines as more
officials become corrupt, because it is
cheaper to be discovered by a corrupt
rather than a noncorrupt superior.
There is a bell-shaped frequency distribution
of officials with respect to their
costs of supplying corrupt services. On
the demand side the potential bribers’
demand for corrupt services decreases
as the bribe size increases and as the
fraction of officials who are corrupt decreases
(raising the search cost for a potential
bribee). This model generates
two stable stationary equilibria of the
Nash type and highlights how the profitability
of corruption is positively related
to its frequency and how temporary
shifts may lead to permanent
changes in corruption.
Raaj Sah (1988) has a model of corruption
with intertemporal behavioral
externalities in the context of overlapping
generations and a Bayesian learning
process in belief formation. The bureaucrats
and citizens both start off
with a subjective probability distribution
which tells them how likely it is
that the agent they will meet in a transaction
is corrupt. Corrupt (noncorrupt)
agents would prefer meeting agents on
the other side of the transaction who
are similarly corrupt (noncorrupt). For
each corrupt agent they meet, they will
revise upwards their subjective probability
estimates of meeting corrupt
people, and are more likely to initiate a
corrupt act in the next period. This is
how beliefs about the nature of an economic
environment one faces formed
on the basis of one’s past experience of
dealing with that environment feeds
into the perpetuation of a culture of
corruption. Again, there are multiple
equilibria and two economies with an
identical set of parameters can have significantly
different levels of corruption;
the particular steady state to which the
economy settles is influenced by the
history of the economy preceding the
steady state.
Sah’s model admits the possibility
that sometimes there may be discrepancies
between beliefs about corruption
frequency and its actual incidence.
Philip Oldenburg’s (1987) account of
the land consolidation program in villages
in U.P. in Northern India provides
an interesting case study in this context.
A land consolidation program involves a
major reorganization of the mapping of
the existing cultivation plots, their valuation
and carving out of new plots in a
village, and thus provides a lot of scope
for corruption for the petty officials in
charge. But Oldenburg’s field investigations
found very little evidence of actual
official corruption. Complaints of
corruption usually came from farmers
who had not got precisely what they
wanted, and did not understand the
process fully, and so assumed that other
farmers who in their perception did
better must have bribed to get their
way. Bribes were often paid to a middleman,
who pocketed the money while
telling the villagers that it was primarily
meant to bribe the Assistant Consolidation
Officer. (He even made a show of
paying a visit to the Officer.) There may
actually be more corruption in other
cases, but Oldenburg makes a valid
point that the middlemen in general
have a vested interest in spreading
(dis)information that “nothing gets
done without bribing the Officials,” and
when everybody believes that, it may
even have the effect of inducing an official
to indulge in corruption, as he is
assumed to be corrupt anyway. This
is a familiar self-fulfilling equilibrium
of corruption.10 (The middleman’s
role in corruption is similar to what
Diego Gambetta (1988, p. 173) observes
in his study of the Italian Mafia:
“the mafioso himself has an interest
in regulated injections of distrust into
the market to increase the demand for
the product he sells—that is, protection.”)
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