Bottom-up revolt against bribery

J. Pollock: Wikimedia Commons

The example is an imaginative approach to nudging the corruption norms in India, designed by Vijay Anand, the head of the 5th Pillar, an Indian NGO. The idea was simple, he printed zero rupee notes suitably adorned with Gandhi's portrait. When people demanded bribes from him, he gave them some of these zero rupee notes. Amazingly, in many cases this simple gesture so jolted the bribe seekers that they gave up. This idea went viral when Anand's NGO printed and distributed a million of these valueless notes in a bottom-up revolt against bribery. p. 223

From Colander and Kupers (2014). 

Do you think it can be justified that someone accepts a bribe in the course of their duties?

That is from data of the most recent World Values Survey (wave 6, 2010-2014). The official website is not working for me today. The graph is from a table where the 10 rows are the level of justification (Never justifiable  . . . Always justifiable) and the columns are the percentage of males (females) corresponding to each row, for all the countries in the survey. For example around 72% of women think it is never justified that someone accepts a bribe in the course of their duties. For males that value it is around 69%.  

Attitudes Toward Bribery in Australia

Overall – Opposition to bribe taking was strong.
Gender – Females were significantly more opposed to bribe taking than men.
Age – The relationship between age and attitude toward bribe taking was linear. The older the age group, the more opposition there was to bribe taking…
Religiosity - Those who considered themselves to be religious were most strongly opposed to bribe taking, followed by nonreligious people and atheists.
Marital Status – Married and widowed people were most opposed to bribe taking, followed by divorced, separated, living together as married and single/never married people.
Education Level – Education was not a significant variable.
Employment Status – Retired people were most strongly opposed to bribe taking, followed by housewives, the self-employed, students, full-time and part-time employees and unemployed.

The paper is by Teresa Hernandez & Robert W. McGee.

Bribing: Worldwide Evidence from Firms

We utilize survey data from over 11,000 firms operating in 125 countries and a profit-maximizing cost-benefit framework to study the determinants of procurement bribery. About one-third of firms bribe to secure public contracts, with an average bribe of 7.9% of the contract value. Econometric estimations suggest that the demand-side of good governance (voice and democratic accountability, press freedom, transparency) and the supply-side (rule of law, government effectiveness), along with competition, significantly reduce the incidence and magnitude of bribery by firms. Multinational firms appear sensitive to reputational risks in their home countries, but also partially adapt to their host country environment, with 20% bribing in middle- and low-income countries, but only 11% bribing in OECD countries; in contrast, 36% of domestic firms bribe. Larger and foreign-owned firms are less likely to bribe than smaller domestic ones, yet among bribers, foreign and domestic firms pay similar amounts. This suggests that reputational risks – affecting the decision to bribe, not the amount – are important. The results point to potential policy measures that raise the costs and lower the benefits of bribing, e.g., publicdisclosure of firms that bribe, and cast doubt on conventional initiatives that may not affect profits, e.g., voluntary codes of conduct.

From a paper by Anna E. D'Souza & Daniel Kaufmann, published in an interesting journal. A draft is here.

Gifts or Bribes: Attitudes on Informal Payments in Romanian Healthcare

How do people explain their attitude towards informal payments? The study among a small group of patients seems to confirm previous findings by showing that patients pay out of fear of what might happen if he or she does not pay, or because they hope receiving better or faster treatment. Furthermore, many participants suggested that they engage in paying or offering gifts and services because they believe that due to the current state of affairs (low salaries of the medical personnel, lack of funds), there is no other way to receive the services they need. Study of participants’ attitudes suggests that they realize that offering a bribe to the medical personnel is an expression of bad mentality. Even though services are supposed to be free of charge, because they already pay insurance, participants claim that patients are not being cared for unless they or their acquaintances will offer the doctors or nurses something. They thus realise that engaging in some kind of bribing or gifting behaviour is necessary, even when it is seen as unacceptable, out of fear of not receiving (good) treatment.

That is from a paper by Andrada Moldovan and Steven Van de Walle.

Experimental Economics: Cracking Down on Bribery

From a paper by Banuri & Eckel (December 2012):

Do crackdowns on bribery exacerbate corruption in the long run? In this paper, we observe the long-run impact of a short-term punishment institution (i.e. a crackdown) on bribery. We conduct lab experiments in two countries with cultures that differ in corruption norms, and have very different levels of bribery: US and Pakistan. Bribery is implemented in the laboratory as a repeated three-player sequential game, consisting of a firm, a government official and a citizen. The design consists of three phases: pre-crackdown, crackdown, and post-crackdown. Results show that, while the crackdown has an immediate effect on bribery, behavior returns to the pre-crackdown levels once enforcement is removed. Post-crackdown behavior is not significantly different from the pre-crackdown phase in either country. We conclude that crackdowns are largely ineffective in impacting behavior in the long run, and that sustained legal enforcement is necessary to constrain bribery, regardless of the norms that prevail in the society.

The cost of bribes for firms in Latin America

From the new study "How Bribery Distorts Firm Growth: Differences by Firm Attributes" by Şeker and Yang: 

This study shows that for firms in the Latin America and Caribbean region, bribery significantly distorts firm growth. Firms that pay bribes when conducting business transactions—such as applying for permits, electricity, or water connections—have 24 percent lower annual sales growth than firms that do not face such solicitations.

The authors conclude:

A limited number of studies have examined the relationship between bribery and firm evolution. In this study, we contribute to this literature by using firm-level data from 29 developing countries in the LAC region. Our analysis is novel in a few dimensions. Micro-level data on corruption are scarce. We use data from Enterprise surveys which apply the same methodology to collect data from a large set of countries. This allows us to combine data for different countries. Second, we study the differential effects of corruption on growth. We assess the impact of bribery on sales growth by focusing on how bribery affects firms differently based on their sales and age.

We find significant differential effects of bribery by firm size and firm age. Paying bribes decreases sales growth of low-sales-generating firms more severely than high-sales-generating firms . . . 

Bribes

A recent article by Rand and Tarp (Economic Development and Cultural Change, April, 2012 -- draft here) provides some data on the reasons why firms pay bribes in Vietnam:

From left to right in the graph above, the reasons are:

1. To get connected to public services.
2. To get licenses and permits.
3. To deal with tax and tax collectors.
4. To gain government contracts.
5. To deal with customs.
6. Other reasons.

The paper concludes:

. . . [T]he firm growth increase after obtaining a business registration license on average outweigh the additional bribe cost of becoming formal; and our analysis shows that this positive registration effect is not driven by self-selection of well-performing firms into formality . . .

Bribes slow down growth and hampers (but does not prevent) formalization. Overall, anti-corruption measures not only contribute to increasing formalization of the economy, but also have the potential of yielding a double dividend on firm performance through direct profit effects.

Bribery, costs, benefits and more

The mechanisms through which permanent income affects bribery are remarkably similar in the disparate settings of Peru and Uganda. The rich bribe more frequently than the poor, principally because they use more officials than the poor and, in Peru, use a more corrupt mix of officials. Amongst users of officials, the rich are slightly more likely to bribe than the poor, although the gap is smaller when unwitting bribes are taken into account. However, although rich bribers pay larger bribes, consistent with price–discrimination, the bribes are a smaller share of their income than is the case for poor bribers. 

. . .  

The main benefit of bribery to a client is avoidance of the poor service delivered to clients who refuse to bribe. The results suggest that service improvements in response to a bribe merely offset service reductions associated with angling for a bribe, and that clients refusing to bribe are punished.

Our results suggest that the main costs of bribery lie in efficiency losses, as any large distributional effects must come indirectly through the performance of the economy. Nevertheless, the Ugandan data indicate that a good starting point for reducing bribery for the poor would be to reduce unwitting bribery by improving literacy and clearly publi- cizing official costs for services. More generally, the results highlight the power of public officials in their relationship with clients and the importance of weakening this power, for example, by providing clients with a choice of official, and rotating officials through jobs.

The paper, "Is Bribery Really Regressive? Bribery’s Costs, Benefits, and Mechanisms," is by Jennifer Hunt and Sonia Laszlo. It is published in the latest number of World Development. A 2007 draft is here. 

A very interesting new paper on the economics of bribery is here - it compares the efficiency of two punishment systems in Germany and China. It has useful policy implications.