Bargaining for Bribes: The Role of Institutions

Abstract

We develop a simple bargaining framework of corruption where firms pay bribes to avoid regulation. Consistent with this setup, we find that time spent bargaining with bureaucrats and amount of bribe payments are positively correlated, but that this association is weaker (and, thus, corruption more efficient) when the terms of unofficial contracts are known to the firms. We also show that institutional arrangements that result in lower uncertainty in bargaining for bribes attenuate the impact of corruption on firm growth.