March 28, 2008
Should we prefer corrupt bureaucrats to compete with each other?
A nice paper at last week’s Royal Economic Society conference from Oxford’s Michael Mikhail Drugov (sorry, Mikhail):
This paper studies the consequences of introducing competition between bureaucrats. Bureaucrats are supposed to grant licences to firms that satisfy certain requirements. Firms have to invest into satisfying these requirements. Some bureaucrats are corrupt, that is, they give the licence to any firm in exchange for a bribe. Some firms prefer to buy the licence rather than to invest and satisfy the requirements imposing negative externalities on the society. The competition regime is found to create more ex ante incentives for firms to invest while the monopoly regime is better at implementing ex post allocation, that is, distributing the licences given the firms’ investment decisions. Additional results on the effects of intermediaries, staff rotation, punishments and endogenous entry to the bureaucracy are provided.
Drugov pointed out that, for instance, in India you have only one local bureaucrat you can go to for a driving licence, while in Russia you have a choice of different offices. If bureaucrats demand bribes, which situation is preferable?
The answer, by the way, is not obvious. We prefer bribes to be low if the bureaucrats are extorting from qualified drivers; but if the bureaucrats are colluding to give licences to unsafe drivers, we’d like the bribes to be high. The paper has much more, for those of a technical bent.
I look forward to reading the paper. A proper analysis is long overdue.
The short cut analysis has long been: If the police are effective, competition is better because the crooks rat on each other. If the police can’t or won’t act, a monopolist is better because he (I cannot recall a she in this role) has more to lose.
Posted by: David Heigham | March 28th, 2008 at 4:41 pm | Report this comment[…] First, I spelt Mikhail Drugov’s name incorrectly in this post about corrupt bureaucrats. […]
Posted by: FT.com | The Undercover Economist | Summer corrections | September 4th, 2008 at 12:13 pm | Report this comment