A Game-Theoretic Analysis of Corruption in Bureaucracies
IMF Working Papers, June 1, 2000
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Bibliographic details
- Authors: Era Dabla-Norris
- Published: June 1, 2000
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451852882.001
Summary
- Examines interactions between self-interested agents in a two-tier government hierarchy, consisting of a central authority and bureaucrats in a two-stage game, where the actions of agents affect private sector allocations.
- Identifies conditions under which lower-tier corruption arises as an equilibrium characterization of the game.
- Notes that if bureaucratic corruption sufficiently reduces the tax base, policies that deter corruption may be optimal.
- Highlights that when monitoring is expensive or ineffective, lower-level corruption arises as equilibrium.
- Observes that tax farming and the sale of offices can occur in these equilibria.
- Finds that strategic complementarities between bureaucrats may give rise to multiple equilibria.
Key Findings and Mechanisms
- Lower-tier corruption can be an equilibrium outcome of interactions in a two-stage game between a central authority and bureaucrats.
- Bureaucratic corruption can sufficiently reduce the tax base, altering optimal policy choices.
- Monitoring costs and monitoring effectiveness are central determinants: when monitoring is expensive or ineffective, corruption at lower levels emerges as equilibrium.
- Institutional arrangements such as tax farming and the sale of offices are possible equilibrium phenomena in the model.
- Strategic complementarities among bureaucrats can lead to multiple equilibria.
Policy Implications
- Policies that deter corruption may be optimal when bureaucratic corruption sufficiently reduces the tax base.
- Monitoring capacity and cost-effectiveness are critical levers; expensive or ineffective monitoring can fail to prevent lower-level corruption.
- Awareness of equilibrium multiplicity is important for policy design because strategic complementarities among bureaucrats can produce multiple self-sustaining outcomes.
Content in this bundle
- A Game - Theoretic Analysis of Corruption in Bureaucracies - WP/00/106