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Leniency, Asymmetric Punishment and Corruption: Evidence from China

37 Pages Posted: 20 Jan 2016 Last revised: 11 Jun 2017

Maria Perrotta Berlin

SITE

Bei Qin

The University of Hong Kong

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Date Written: May 25, 2017

Abstract

Leniency policies and asymmetric punishment are regarded as potentially powerful anti-corruption tools, also in the light of their success in busting price-fixing cartels. It has been argued, however, that the introduction of these policies in China in 1997 has not helped fighting corruption. Following up on this view, the Central Committee of the Chinese Communist Party passed, in November 2015, a reform introducing heavier penalties, but also restrictions to leniency. Properly designing and correctly evaluating these policies is difficult. Corruption is only observed if detected, and an increase in convictions is consistent with both reduced deterrence or improved detection. We map the evolution of the Chinese anti-corruption legislation, collect data on corruption cases for the period 1986-2010, and apply a new method to identify deterrence effects from changes in detected cases developed for cartels by Miller (2009). We document a large and stable fall in corruption cases starting immediately after the 1997 reform, consistent with a negative effect of the reform on corruption detection, but under specific assumptions also with increased deterrence. To resolve this ambiguity, we collect and analyze a random sample of case files from corruption trials. Results point to a negative effect of the 1997 reform, linked to the increased leniency also for bribe-takers cooperating after being denounced. This likely enhanced their ability to retaliate against reporting bribe-givers – chilling detection through whistleblowing – as predicted by theories on how these programs should (not) be designed.

Keywords: corruption, China, asymmetric punishment, leniency

JEL Classification: K14, N45

Suggested Citation

Berlin, Maria Perrotta and Qin, Bei and Spagnolo, Giancarlo, Leniency, Asymmetric Punishment and Corruption: Evidence from China (May 25, 2017). Available at SSRN: https://ssrn.com/abstract=2718181 or http://dx.doi.org/10.2139/ssrn.2718181

Maria Perrotta Berlin (Contact Author)

SITE ( email )

P.O. Box 6501
S-113 83 Stockholm, 11383
Sweden

HOME PAGE: http://https://www.hhs.se/sv/personsida/?PersonID=25531033

Bei Qin

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

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