Who Must Pay Bribes and How Much? Evidence from a Cross-Section of Firms

Abstract

This Paper uses an unique data set on corruption containing quantitative information on estimated bribe payments of Ugandan firms. The data has two striking features: not all firms report they need to pay bribes; and there is considerable variation in reported graft across firms facing similar institutions/policies. To explain these patterns we construct a simple bargaining model. The model yields predictions on both the incidence and the level of graft. Consistent with the model we find that variation in policies/regulations (across industries) explains the incidence of corruption, while variation in profitability and technology choice explains the variation in bribes for the group of bribe paying firms. These findings suggest that public officials act as price (bribe) discriminators, and that prices of public services are endogenously determined in order to extract bribes.

Keywords: Corruption, quantitative data

JEL Classification: D90, H20, K40, L10