IDEAS home Printed from https://ideas.repec.org/a/eee/pubeco/v250y2025ics0047272725001811.html

When does corruption cause red tape? Bribe discrimination under asymmetric information

Author

Listed:
  • Mattsson, Martin

Abstract

Under what circumstances does corruption cause inefficiencies, and when are bribes merely transfers? I propose a modified monopoly price discrimination model that shows under what circumstances corruption leads to an inefficiently high administrative burden in government-firm interactions. The model highlights the importance of the information the bureaucrat has regarding the firms’ willingness to pay (WTP) to avoid administrative burden and the bureaucrat’s decision to gather this information. The government-firm interaction will have a Pareto efficient level of administrative burden with perfect price (i.e., bribe) discrimination if the bureaucrat decides to investigate the firm and learn its WTP. If the cost of investigation is too high, the government official instead uses red tape to extract more bribes from firms with higher WTP, causing inefficiently high levels of administrative burden. I show that the model’s predictions are consistent with data from 186,277 government-firm interactions from 18 years of the Enterprise Survey covering 158 countries. I find that corruption leads to increased administrative burden when government officials have less information about the firm’s WTP and that the effect is larger for firms with a low WTP. This has several policy implications for how to reduce administrative burden and where to focus anti-corruption efforts.

Suggested Citation

  • Mattsson, Martin, 2025. "When does corruption cause red tape? Bribe discrimination under asymmetric information," Journal of Public Economics, Elsevier, vol. 250(C).
    • Handle: RePEc:eee:pubeco:v:250:y:2025:i:c:s0047272725001811
    DOI: 10.1016/j.jpubeco.2025.105483

    Download full text from publisher

    As the access to this document is restricted, you may want to for a different version of it.

    References listed on IDEAS

    1. Guriev, Sergei, 2004. "Red tape and corruption," Journal of Development Economics, Elsevier, vol. 73(2), pages 489-504, April.
    2. repec:spo:wpmain:info:hdl:2441/4sjhnqr68e9b1ov9t31v464u3k is not listed on IDEAS
    3. Abhijit V. Banerjee, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1289-1332.
    4. Caroline Freund & Mary Hallward-Driemeier & Bob Rijkers, 2016. "Deals and Delays: Firm-level Evidence on Corruption and Policy Implementation Times," The World Bank Economic Review, World Bank, vol. 30(2), pages 354-382.
    5. Jakob Svensson, 2003. "Who Must Pay Bribes and How Much? Evidence from a Cross Section of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 207-230.
    6. Raymond Fisman & Sergei Guriev & Carolin Ioramashvili & Alexander Plekhanov, 2024. "Corruption and Firm Growth: Evidence from around the World," The Economic Journal, Royal Economic Society, vol. 134(660), pages 1494-1516.
    7. Robin Burgess & Matthew Hansen & Benjamin A. Olken & Peter Potapov & Stefanie Sieber, 2012. "The Political Economy of Deforestation in the Tropics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(4), pages 1707-1754.
    8. Claudio Ferraz & Frederico Finan & Diana Belo Moreira, 2009. "Corrupting Learning: Evidence from Missing Federal Education Funds in Brazil," Textos para discussão 562, Department of Economics PUC-Rio (Brazil).
    9. Sequeira, Sandra & Djankov, Simeon, 2014. "Corruption and firm behavior: Evidence from African ports," Journal of International Economics, Elsevier, vol. 94(2), pages 277-294.
    10. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    11. Benjamin A. Olken & Patrick Barron, 2009. "The Simple Economics of Extortion: Evidence from Trucking in Aceh," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 417-452, June.
    12. Guriev, Sergei, 2004. "Red tape and corruption," Journal of Development Economics, Elsevier, vol. 73(2), pages 489-504, April.
    13. Jeffrey Weaver, 2021. "Jobs for Sale: Corruption and Misallocation in Hiring," American Economic Review, American Economic Association, vol. 111(10), pages 3093-3122, October.
    14. Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
    15. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    16. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    17. Benjamin A. Olken, 2007. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 200-249.
    18. Marianne Bertrand & Simeon Djankov & Rema Hanna & Sendhil Mullainathan, 2007. "Obtaining a Driver's License in India: An Experimental Approach to Studying Corruption," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1639-1676.
    19. Fredriksson, Anders, 2014. "Bureaucracy intermediaries, corruption and red tape," Journal of Development Economics, Elsevier, vol. 108(C), pages 256-273.
    20. repec:spo:wpecon:info:hdl:2441/4sjhnqr68e9b1ov9t31v464u3k is not listed on IDEAS
    21. Mary Hallward-Driemeier & Lant Pritchett, 2015. "How Business Is Done in the Developing World: Deals versus Rules," Journal of Economic Perspectives, American Economic Association, vol. 29(3), pages 121-140, Summer.
    22. Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-781, August.
    23. Olken, Benjamin A., 2009. "Corruption perceptions vs. corruption reality," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 950-964, August.
    24. Mohammad Amin & Yew Chong Soh, 2021. "Does Greater Regulatory Burden Lead to More Corruption? Evidence Using Firm-Level Survey Data for Developing Countries," The World Bank Economic Review, World Bank, vol. 35(3), pages 812-828.
    25. Martin Mattsson, 2025. "Information Systems, Service Delivery, and Corruption: Evidence from the Bangladesh Civil Service," American Economic Journal: Applied Economics, American Economic Association, vol. 17(3), pages 414-445, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. M. Shahe Emran & Asadul Islam & Forhad Shilpi, 2020. "Distributional Effects of Corruption When Enforcement is Biased: Theory and Evidence from Bribery in Schools in Bangladesh," Economica, London School of Economics and Political Science, vol. 87(348), pages 985-1015, October.
    2. Abhijit Banerjee & Rema Hanna, 2012. "Corruption [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
      • Hanna, Rema N. & Mullainathan, Sendhil & Banerjee, Abhijit, 2012. "Corruption," Scholarly Articles 8830779, Harvard Kennedy School of Government.
      • Abhijit Banerjee & Rema Hanna & Sendhil Mullainathan, 2012. "Corruption," Working Papers id:4952, eSocialSciences.
      • Abhijit Banerjee & Sendhil Mullainathan & Rema Hanna, 2012. "Corruption," NBER Working Papers 17968, National Bureau of Economic Research, Inc.
      • Banerjee, Abhijit & Hanna, Rema & Mullainathan, Sendhil, 2012. "Corruption," Working Paper Series rwp12-023, Harvard University, John F. Kennedy School of Government.
    3. Foltz, Jeremy & Li, Kangli, 2023. "Competition and corruption: Highway corruption in West Africa," Journal of Development Economics, Elsevier, vol. 163(C).
    4. Hai Zhong, 2018. "Measuring Corruption in China: An Expenditure‐based Approach Using Household Survey Data," Economica, London School of Economics and Political Science, vol. 85(338), pages 383-405, April.
    5. Benjamin A. Olken & Rohini Pande, 2012. "Corruption in Developing Countries," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 479-509, July.
    6. Beekman, Gonne & Bulte, Erwin & Nillesen, Eleonora, 2014. "Corruption, investments and contributions to public goods: Experimental evidence from rural Liberia," Journal of Public Economics, Elsevier, vol. 115(C), pages 37-47.
    7. Andrew Delios & Edmund J. Malesky & Shu Yu & Griffin Riddler, 2024. "Methodological errors in corruption research: Recommendations for future research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 55(2), pages 235-251, March.
    8. Ronald Fischer & Nicolás Campos & Eduardo Engel & Alexander Galetovic, 2019. "Renegotiations and Corruption in Infrastructure: The Odebrecht Case," Documentos de Trabajo 346, Centro de Economía Aplicada, Universidad de Chile.
    9. Fonseca-Mairena, María Haydée & Triossi, Matteo, 2019. "Incentives and implementation in marriage markets with externalities," Economics Letters, Elsevier, vol. 185(C).
    10. Niehaus, Paul & Sukhtankar, Sandip, 2013. "The marginal rate of corruption in public programs: Evidence from India," Journal of Public Economics, Elsevier, vol. 104(C), pages 52-64.
    11. José García-Montalvo & Juan-José Ganuza & Roberto Burguet, 2016. "The Microeconomics of Corruption. A Review of Thirty Years of Research," Working Papers 908, Barcelona School of Economics.
    12. Krisztina Kis-Katos & Günther G. Schulze, 2013. "Corruption in Southeast Asia: a survey of recent research," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 27(1), pages 79-109, May.
    13. Athanasouli, Daphne & Goujard, Antoine, 2015. "Corruption and management practices: Firm level evidence," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 1014-1034.
    14. Harouna Sedgo & Luc Désiré Omgba, 2023. "Corruption and distortion of public expenditures: evidence from Africa," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(2), pages 419-452, April.
    15. Bernard Gauthier & Jonathan Goyette, 2016. "Fiscal policy and corruption," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(1), pages 57-79, January.
    16. Sequeira, Sandra & Djankov, Simeon, 2014. "Corruption and firm behavior: Evidence from African ports," Journal of International Economics, Elsevier, vol. 94(2), pages 277-294.
    17. M. Shahe Emran & Asadul Islam & Forhad Shilpi, 2013. "Admission is Free Only if Your Dad is Rich! Distributional Effects of Corruption in Schools in Developing Countries," Monash Economics Working Papers 11-13, Monash University, Department of Economics.
    18. Yan Leung Cheung & P. Raghavendra Rau & Aris Stouraitis, 2012. "How much do firms pay as bribes and what benefits do they get? Evidence from corruption cases worldwide," NBER Working Papers 17981, National Bureau of Economic Research, Inc.
    19. Hunt, Jennifer & Laszlo, Sonia, 2012. "Is Bribery Really Regressive? Bribery’s Costs, Benefits, and Mechanisms," World Development, Elsevier, vol. 40(2), pages 355-372.
    20. Abhijit Banerjee & Esther Duflo & Clément Imbert & Santhosh Mathew & Rohini Pande, 2020. "E-governance, Accountability, and Leakage in Public Programs: Experimental Evidence from a Financial Management Reform in India," American Economic Journal: Applied Economics, American Economic Association, vol. 12(4), pages 39-72, October.

    More about this item

    Keywords

    ; ; ; ;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:250:y:2025:i:c:s0047272725001811. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505578 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.