Bribe-Taking and Bureaucratic Competition: A Search Cost Model of Corruption

Abstract

Competition among bureaucrats for bribe revenue has often been viewed as a way to reduce the incidence and magnitude of bribe payments. This paper proposes a model where firms can search among multiple corrupt bureaucrats to find the cheapest bribe associated with obtaining a required service. Competition among bureaucrats can reduce the size of bribes only when all firms can search without cost. When search costs prohibit some firms from shopping around, competition actually increases the bribes that bureaucrats charge. This result is tested empirically using Russia as a case study. Using firm-level surveys and regional panel data I find evidence that more competition within the municipal administrative bureaucracy is associated with larger bribe payments made by firms. I conclude that bureaucratic competition for bribe revenue is not always a solution to the corruption problem.