Asymmetric Punishment as an Instrument of Corruption Control

• Author: KAUSHIK BASU,TITO CORDELLA,KARNA BASU
• Published date: 01 December 2016
• Date: 01 December 2016
• DOI: http://doi.org/10.1111/jpet.12212

ASYMMETRIC PUNISHMENT AS AN INSTRUMENT

OF CORRUPTION CONTROL

KARNA BASU

City University of New York

KAUSHIK BASU

The World Bank and Cornell University

TITO CORDELLA

The World Bank

Abstract

The control of bribery is a policy objective in many developing coun-

tries. It has been argued that asymmetric punishments could reduce

bribery by incentivizing whistle-blowing. This paper investigates the

role played by asymmetric punishment in a setting where bribe size is

determined by Nash bargaining, detection is costly, and detection rates

are set endogenously. First, if whistle-blowing is infeasible, the symme-

try properties of punishment are irrelevant to bribery deterrence but

not to bribe size. Bribery disappears if expected penalties are suffi-

ciently high; otherwise, bribe sizes rise as expected penalties rise. Sec-

ond, when the bribe-giver may whistle-blow, a switch from symmetric

to asymmetric punishment eliminates bribery only if whistle-blowing

is cheap and the stakes are low. When bribery persists, multiple bribe

sizes could survive in equilibrium. The paper derives parameter values

under which each of these outcomes occurs, and discusses implications

for welfare and the design of policy.

1. Introduction

Corruption is a major concern in several countries. One reason it is difficult to control

is that those involved have an incentive to collude to prevent detection. While this is a

Karna Basu, Hunter College and The Graduate Center, City University of New York, New

York (kbasu@hunter.cuny.edu). Kaushik Basu, The World Bank, Washington, DC and Cornell

University, Ithaca, NY (kb40@cornell.edu). Tito Cordella, The World Bank, Washington, DC

(tcordella@worldbank.org).

This paper has benefited from conversations with Christian Ahlin, Abhimanyu Arora, Gautam Bose,

Jonathan Conning, Avinash Dixit, Randall Filer, Fahad Khalil, Stephan Litschig, Ajit Mishra, Kalle

Moene, Dilip Mookherjee, Debraj Ray, Rohini Somanathan, Giancarlo Spagnolo, and Aristomene

Varoudakis. Wealso thank conference participants at NEUDC (Boston University), ACEGD (ISI Delhi),

ThReD (ECARES, Universite Libre de Bruxelles), “Fighting Corruption in Developing and Transition

Countries” (SITE), and seminar participants at the University of Pennsylvania Law School, Boston

University, University of California-Merced, and University of Milan.

Received March 1, 2016; Accepted May 3, 2016.

C2016 Wiley Periodicals, Inc.

Journal of Public Economic Theory, 18 (6), 2016, pp. 831–856.

831

832 Journal of Public Economic Theory

feature of many criminal activities, the detection of corruption might be made harder

by criminal codes that, in most countries, penalize the bribe-giver and the bribe-taker

equally.1Under such a legal framework, all participants in a bribing scheme, including

those who might otherwise be considered victims and could be tempted to act as whistle-

blowers, have a vested interest against doing so.

How could collusion be weakened and bribery reduced? A possible solution lies

in asymmetric punishment. By penalizing some parties less than others, the government

can create ex post incentives for agents to report the crime and thereby stop colluding.

The idea of asymmetric punishment is not new. For example, prosecutors in the United

States selectively offer immunity to those who reveal financial crimes that they might

themselves have been complicit in. In Italy, similar schemes have been used to fight

organized crime. The United States and the European Union use conditional leniency

as a way to deter cartels (Marvao and Spagnolo 2014).

But asymmetric punishment is relatively rare in the case of bribery. As Rose-

Ackerman (2010) writes, “[B]oth [bribe paying and bribe acceptance] are generally

criminal offenses, and most statutes impose parallel punishments.” According to India’s

Prevention of Corruption Act (1988), the giver and the taker of a bribe are consid-

ered equally culpable and can be financially penalized and incarcerated for up to five

years. The United States too regards both the giving and receiving of bribes as criminal

acts. But there are some exceptions that serve as examples of asymmetric punishment.

In China and Taiwan, bribe-giving is a crime only if the payer receives illegal benefits

(Li 2012). In Romania, furthermore, the bribe-giver is in some cases entitled to have

her payments returned to her (Rose-Ackerman 2010).

Given the pervasiveness of bribery, there might be significant political and eco-

nomic returns to tackling the problem with redesigned penalty structures. In a note

for India’s Ministry of Finance, Basu (2011) proposed the following in the case of

harassment bribes (bribes paid for services citizens are entitled to receive for free): de-

criminalize bribe-giving and require the bribe-taker to return the bribe to the bribe-

giver if caught. This creates ex post incentives for citizens to reveal that bribes were

paid, and could end up discouraging bureaucrats from demanding bribes in the first

place.2

In this paper, we theoretically analyze the effects of asymmetric punishment on ha-

rassment bribes.3We build a model that combines two key features—bribe size is deter-

mined by Nash bargaining and whistle-blowing is costly and imperfect. The effects of

a switch from symmetric to asymmetric punishment depend on parameter values, and

in some subtle ways. Whistle-blowing depends on bribe size, and bribe size depends on

anticipated whistle-blowing. As a result, asymmetric punishment does not automatically

deter the bureaucrat from demanding a bribe—the bureaucrat and citizen may be able

to agree on a modified bribe size that accounts for whistle-blowing.

1See Linklaters (2012) for a survey.

2This note generated some public comment. See The Economist Dreze (2011), Sainath (2011), Mitra

(2011), Seabright (2011), Haider (2012), and Zakaria (2011).

3In the words of Rose-Ackerman (1999), these are “bribes as incentive bonuses.” Examples from Basu

(2011): “Suppose an income tax refund is held back from a taxpayer till he pays some cash to the officer.

Consider a case where to buy a regular train ticket you are told that you have to pay some money under

the table. Suppose government allots subsidized land to a person but when the person goes to get her

paperwork done and receive documents for this land, she is asked to pay a hefty bribe. Consider the

case of an exporter who has fulfilled all formalities is asked to make an illegal payment before getting a

customs clearance.”