Can asymmetric punishment deter endogenous bribery

Abstract

This paper studies the effects of asymmetric punishment of bribery on both bribery and compliance with regulations. The bribe amount is decided via Nash bargaining and regulatory compliance and whistle-blowing are strategic decisions. Moreover, investigations of bribery and noncompliance occur in a manner that may be interdependent. We show that, under symmetric punishment, inducing whistle-blowing has no effect on the frequency of bribery. When the bribery and noncompliance investigations are independent, a switch from symmetric to asymmetric punishment either makes no difference or induces more nonharassment bribery. Only when bribery detection increases the chance of noncompliance detection and asymmetric punishment leads to whistle-blowing for both types of entrepreneurs, can the shift succeed in reducing noncompliance. The result is robust to the case where legalization of bribe-giving is not feasible for nonharassment bribes.