Organized vs. Competitive Corruption

Abstract

We study bureaucratic corruption in a model in which a constituency sets required levels for a given set of activities. Activities are carried out by external providers who are supervised by bureaucrats. Bureaucrats can allow providers to deliver lower activity levels than contracted in exchange for a bribe. The constituency sets the optimal activity levels weighing off the value of activity levels, their costs, as well as the possibility for the bureaucrats to be corrupt. We compute equilibrium corruption in two different settings: 1) Each bureaucrat maximizes his own individual utility (competitive corruption); 2) An illegal syndicate maximizes total proceeds from corruption (organized corruption). We show that the illegal syndicate acts in such a way as to restrain the total number of corrupt transactions, so that corruption is lower when it is organized than when it is competitive.

Keywords: Competitive and organized corruption, institutional response

JEL Classification: C72, D73, K42