Decentralized Bribery: The Costs, The Benefits, and The Taming

Abstract

I propose a bribery model in which bureaucratic decisionmaking is decentralized. I establish that bribe extortion is economically nonneutral, and that capital markets in corrupt economies exhibit higher returns. There are multiple stable equilibria: high levels of bribery reduce the economy's productivity due to suppression of small businesses. Competition among bureaucrats might improve the outcome, but does not necessarily decrease the total graft. The choice of corruption fighting tactics and the choice of whom to blame provide nontrivial outcomes.