Does it matter who extorts? Extortion by competent and incompetent enforcers

Law enforcement officers can engage in two forms of corruption. Bribery, which arises when officers accept bribes from criminals, and extortion when officers demand payments from law-abiders. While bribery is mutually beneficial to both parties and therefore easy to explain, explaining extortion is more challenging because it only benefits one party; namely, the extortionist officer. The prior literature assumes that extortion is feasible because the enforcer can threaten to frame law-abiders. However, this requires the enforcer to already know whether the agent is a criminal or a law- abider. In contrast, this paper develops a model in which extortion occurs before the official has fully ascertained whether a suspect is a criminal or not. Specifically, officers choose whether to become competent or incompetent and incompetent enforcers cannot distinguish between criminals and law-abiding citizens while competent officers can. We show that incompetent officials can engage in extortion where law-abiders are forced to pay bribes along with criminals or harassment where law-abiders are investigated but not punished. Consequently, permitting extortion affects not only the level of crime directly but also officers’ incentives to become competent, which in turn affects deterrence. Accordingly, in contrast to the prior literature we show that compliance in an equilibrium with more extortion is not always lower than one in which there is no extortion. Rather, what matters for policy decisions is who engages in extortion; that is, whether the competent or incompetent extort.