Wednesday, 29 August 2007

Research Paper: "On how to construct anti-corruption policy"

Although this paper looks at Indonesia there are lessons for the Chinese government to learn in my opinion. This is an interesting paper and a great data set.

If nothing else it shows how complex the problem of corruption is and how astute/rational/intelligent the perpetrators are at all levels of a corrupt economy.

Reading the abstract you could be forgiven that this paper is considering perhaps the lowest level of corruption.

"The Simple Economics of Extortion: Evidence from Trucking in Aceh"
NBER Working Paper No. W13145

National Bureau of Economic Research (NBER),
Harvard University - Society of Fellows

World Bank

Full Text:

ABSTRACT: This paper tests whether the behavior of corrupt officials is consistent with standard industrial organization theory. We designed a study in which surveyors accompanied truck drivers on 304 trips along their regular routes in two Indonesian provinces, during which we directly observed over 6,000 illegal payments to traffic police, military officers, and attendants at weigh stations. Using plausibly exogenous changes in the number of police and military checkpoints, we show that market structure affects the level of illegal payments, finding evidence consistent with double-marginalization and hold-up along a chain of vertical monopolies. Furthermore, we document that the illegal nature of these payments does not prevent corrupt officials from extracting additional revenue using complex pricing schemes, including third-degree price discrimination and a menu of two-part tariffs. Our findings illustrate the importance of considering the market structure for bribes when designing anti-corruption policy.

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