Saturday, November 15, 2008

Who must pay bribes and how much?

Development economists interested in bribery should read Svensson (2003) before designing their research. I've seen a couple of papers on corruption which completely ignore the contribution made by this piece of research.

He takes great care of designing the firm survey to solicit reliable information on bribe-paying behavior, which should be followed by anyone who wants to collect bribe data by surveys.

His empirical findings include:

(1) Firms are more likely to pay bribes if they are required to deal with the public sector officials (using public infrastructure, engaging in international trade, and paying taxes). In other words, formal sector firms are more likely to pay bribes than informal sector ones. A theoretical reason is that such firms lose a lot by refusing to pay bribes.
(2) More profitable firms are as likely to pay bribes as less profitable firms. But more profitable firms pay a larger amount of bribes than less profitable ones, conditional on bribe payments. This is an interesting fact. Barely profitable firms still need to pay bribes, if a very small amount, so that they can keep operating.
Any theory on bribery contradicting to these findings is hard to appreciate (unless counter-evidence is provided). If your empirical finding is different from these findings, you need to explain why.

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