The Law and Economics of Bribery and Extortion
Annual Review of Law and Social Science, Vol. 6, pp. 217-236, 2010
51 Pages Posted: 23 Jul 2010 Last revised: 17 Nov 2010
Date Written: November 15, 2010
Corruption has serious economic and social costs and can undermine government legitimacy. Economic analysis can help one understand the incentives for bribery and extortion and the deterrent effect of the law. Such analysis suggests that the law in many jurisdictions needs to be redesigned. Penalties are poorly tied to the marginal benefits of bribery. Small bribes often are more effectively deterred than larger ones because penalties are not tied to the perpetrators’ gains. Economic analysis also highlights the tension between obtaining evidence to bring a case ex post and deterrence ex ante. Furthermore, enforcement programs have not incorporated bureaucratic structure in a sophisticated way, and in many countries the criminal law only applies to individuals, not firms. In short, economic analysis can help guide the reform debate by proposing workable law enforcement strategies for the control of bribery and extortion.
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