Working Paper: NBER ID: w13145
Authors: Benjamin A. Olken; Patrick Barron
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.
Keywords: Corruption; Bribery; Market Structure; Price Discrimination
JEL Codes: D73; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction in the number of checkpoints due to military withdrawal (H56) | Significant increase in the average bribe paid at remaining checkpoints (R48) |
| Changes in the number of checkpoints (H77) | Elasticity of average bribes with respect to the expected number of checkpoints (R48) |
| Downstream checkpoints (L98) | Higher bribes than upstream checkpoints (H29) |
| Observable characteristics of drivers (R48) | Higher prices charged by corrupt officials (H57) |
| Illegal nature of payments (K42) | Emergence of complex pricing schemes (D49) |