Suppose the factory has polluted and
the inspector has found out about it. If
bribery is going on, then small increases
in r or p may merely raise the level of
the bribe: a compensation policy
whereby the larger reward for the inspector
or a higher penalty for taking a
bribe, raises the cost borne by the inspector
for underreporting pollution,
and so the inspector demands and receives
a larger bribe, and corruption increases.
Mookherjee and Png show that
it takes a sufficiently large, discrete, increase
in the reward or the penalty to
eliminate corruption (when the inspector’s
demand for bribe rises beyond the
factory’s willingness to pay). One way to
reduce the bribe, however, is to raise q,
the penalty on the bribe-giver (making
bribing more costly for him), while reducing
the penalty p for the bribe-taker
(so that the latter does not demand a
larger bribe): this contrasts with the
typical practice of punishing bribe-givers
less severely than bribe-takers.
What effect does the compensation
policy have from the point of view of
the primary objective of regulating pollution?
A small increase in the reward
rate r, by raising the bribe and hence
the price of pollution will lower the incentive
for the factory to pollute. The
larger bribe will increase the inspector’s
incentive to monitor, further deterring
the factory. The reduction in pollution,
on the other hand, will discourage the
inspector from monitoring. In equilibrium
the net effect is to reduce pollution.
By contrast, when the regulator
raises the penalty rate p on the inspector,
this will reduce his incentive to
monitor; the reduction in monitoring
can reduce the expected penalty for
pollution for the factory, and hence the
result may be more pollution. Thus although
the inspector is risk-neutral, the
carrot (reward for reporting pollution)
and the stick (penalty for taking a
bribe) can have opposite effects on the
level of pollution. All this is not to discourage
a suitable incentive payment
system in the context of corruption but
to point to the nature of complexities
involved.16 The analysis also suggests
e reward system should be more geared
to the incidence of the primary harm
that the regulator is supposed to control.
(This indicates that in the case of
controlling corruption in the Customs
department the value of paying rewards
to customs officials should be assessed
by their effect on the open-market
price of the product subject to import
controls.)
Finally, policy issues on corruption
cannot be discussed without involving
the larger question of the nature of the
state that is supposed to carry out the
policies. This is too large a topic to be
covered here,17 but one may nevertheless
point out that to assume that all
states are predatory, as is customary in
much of the public choice literature in
the context of developing countries,
does not help in understanding why corruption
is more in some countries than
in others (even with similar extent of
state intervention), and why countries
with similar over-all levels of corruption
differ in its effect on productivity and
growth. We have noted in Section III
that political competition can reduce
corruption (unless the transaction costs
in the political market, in the form, say,
of campaign finances, are too large),
but what is particularly important in deciding
the economic consequences of
corruption is the extent of centralization
in the rent-collection machinery.
Weak and fragmented governments
(even under authoritarian rulers) with
rampant economic warlordism can let
loose a regime of decentralized looting
that is particularly harmful for static
and dynamic efficiency.
Some African states in recent history
became predatory in their rent-extraction
not because they were strong, but
because they were weak: the state could
not enforce the laws and property rights
that provide the minimum underpinnings
of a market economy and thus lost
respect; disrespect quickly led to disloyalty
and thievery among public officials.
The strong states of East Asia with their
centralized rent-collection machinery
and their dense “encompassing” network
with business interests stand in
sharp contrast, even though by some
measures corruption has been quite
substantial. As we have emphasized in
our discussion of “lump-sum corruption”
in Section II, the ability to precommit
credibly may have been an important
feature of the “strength” of
such states. This is not to deny that getting
rid of many of the dysfunctional
regulations remains a major first step in
anti-corruption policy, whatever the nature
of the state. In addition, it is imperative
to institutionalize the various
kinds of accountability mechanisms at
different levels of the government (that
we have briefly discussed in Section V)
as part of the agenda for any meaningful
policy reform in this context.
No comments:
Post a Comment