I Know What I Need: Optimization of Bribery
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ORIGINAL PAPER
I Know What I Need: Optimization of Bribery Yu Yan1 · Shusen Qi2 Received: 29 October 2019 / Accepted: 19 August 2020 © Springer Nature B.V. 2020
Abstract Corruption has been a major obstacle to economic growth around the world. In this paper, we examine how firms interact with corrupt government officials either to minimize the impact of corruption on their operations or to maximize their benefit of paying a bribe. Our estimates show that firms know exactly what they need and use their limited resources to bribe only relevant government authorities. In other words, firms are rational bribers who know exactly what they need and optimize their bribes to fulfill that need. This type of intentional bribery could be reduced by enhanced institutional environments and improved openness of the economy. Keywords Bribery · Cause of corruption · Intentional bribery
Introduction Corruption has been a hotly debated topic around the world for more than two decades. Many international organizations impose sanctions on corporations that are found to be corrupt. For example, World Bank, European Bank for Reconstruction and Development, Inter-American Development Bank, African Development Bank, among others, publish a “debarment list” of firms against which sanctions (i.e., debarred companies are ineligible for bank-financed contracts) have been imposed. Many countries are greatly affected by corruption and, as a result, are moving aggressively to address it by introducing stricter anticorruption regulations or laws (Fungáčová et al. 2015). In the early years, many studies had argued that corruption might be beneficial for economic growth by greasing the wheels (Leff 1964; Leys 1965). Specifically, in a second-best world where institutions are ill functioning, corruption may help firms circumvent inefficient institutions and avoid bureaucratic delays. For example, corruption can * Shusen Qi [email protected] Yu Yan [email protected] 1
Postdoctoral Research Center, School of Law, Xiamen University, 422 Siming South Road, Xiamen 361005, China
School of Management, Xiamen University, 422 Siming South Road, Xiamen 361005, China
2
significantly reduce effective tax rates to the extent that bribery is used to reduce tax liabilities if the marginal bribe rate is below the official marginal tax rate (Olken and Pande 2012). Empirically, Chen et al. (2013) find that bribery largely determines the extent to which private firms have access to bank credit in China. The financial sector is beset by corruption: Payments for loan approvals, massive theft by insiders, misuse of funds, and large-scale fraud are routine in Chinese banks. However, current mainstream studies suggest that corruption acts more like sand in the wheels, hampering the overall performance of the economy (Mauro 1995; Rajan and Zingales 1998; Wei 2000; Mo 2001; Gaviria 2002; Pellegrini and Gerlagh 2004; Fisman and Svensson 2007). The negative impact of corruption on firm performance is due to not only the additional monetary costs demanded by
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