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2016 | OriginalPaper | Buchkapitel

4. Corruption: Supply-Side and Demand-Side Solutions

verfasst von : Avinash K. Dixit

Erschienen in: Development in India

Verlag: Springer India

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Abstract

As any other economic transaction, corruption too has demand and supply dimensions. The focus thus far has been on the demand side, viz., government trying to control its own officials. Dixit shifts the attention to the supply side, viz., firms. He proposes that business community itself could set a norm of ‘no bribes’ and enforce it through ostracism such as ‘not doing business with those firms who give bribes’. Dixit suggests that largest firms could potentially take the lead as they may be better able to withstand initial losses till the norm takes roots.

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Vorheriges Kapitel Evolution of Judicial Activism: The Supreme Court of India

Nächstes Kapitel Can a Country Be a Donor and a Recipient of Aid?

See Easterly (2001) and Rodrik (2003).

The insidious and harmful pervasiveness of such harassment and extortion is brilliantly described by Boo (2012).

See Ostrom et al. (2007) for a related argument in the context of environmental problems.

Kaushik Basu’s idea, namely that suppliers of harassment bribes should be offered immunity from prosecution if they turn whistle-blowers, serves the purpose of facilitating the punishment of the officials who demand the bribes, and therefore is basically a demand-side solution. This idea proved very controversial; fortunately my argument is quite different so I don’t need to get into that controversy here.

See Ostrom (1990), and her Nobel Prize Lecture, “Beyond Markets and States: Polycentric Governance of Complex Economic Systems,” for which both text and video are available at http://www.nobelprize.org/nobel_prizes/economics/laureates/2009/ostrom-lecture.html.

Greif’s (2006) is a compendium of his classic historical research on such institutions. See also the criticism by Jeremy Edwards and Sheilagh Ogilvie (2012). My book Lawlessness and Economics (2004) gives an overview of related research and develops some theoretical models.

This is similar to the “honor code” at West Point and some US universities (including Princeton): the faculty do not monitor examination rooms; instead, students are supposed to report anyone they see violating the rules, and any failure to report is itself a violation of the honor code.

A rigorous but technical proof goes as follows. In the many-player repeated game of the business community, each player in each deal must have enough surplus or profit to offset the benefit he could get by a one-time cheating. If A has cheated, and C offers to deal with him, A’s temptation to cheat C to take the one-time benefit is greater because he is already ostracized by the rest and therefore has less to fear about the future. Therefore C would have to offer A more surplus to stay honest than if he chose a partner who did not have a history of cheating. Therefore C would only lower his own payoff by violating the norm. This is what sustains ostracism as a Nash equilibrium. See Greif, op. cit., Proposition 3.2 on p. 77.

Nobel Prize lecture cited above, p. 419.

Kumar (2011).

For formal game-theoretic models, see Kingston (2008) and Dixit (2014).

In the jargon of information economics, they can use information that is merely observable, not verifiable, while law courts insist on verifiable information.

Most notable are Lisa Bernstein’s studies of the diamond and cotton industries in the U.S. See Bernstein (1992, 2001).

See Olson and Zeckhauser (1966).

In economics jargon, we are not starting behind a Rawlsian veil of ignorance where no one knows which position they will occupy in the proposed arrangement.

See my paper Dixit (2003) for a model of such a process.

In this context “common knowledge” is a technical term; it means that everyone knows, everyone knows that everyone knows, and so on to infinity.

Footnote 8 gives a more rigorous statement.

Such complementarity between different functions of a relational governance institution is observed in other contexts also. For example, in Lisa Bernstein’s studies cited above, the business communities of diamond and cotton dealers also have social ties among their families, and threats of social ostracism strengthen the punishment of business ostracism in deterring opportunistic behavior in contracts. Associations like Rotary and Lions Clubs provide business networking and matching to their members, and a threat of cutting off access to these services can reinforce their role as private order institutions to ensure good behavior in contracts between members; see Xu (2006).

My suggestion follows Shleifer and Vishny (1998).

Descriptions can be found at http://asiafoundation.org/publications/pdf/842, http://cda.nevcounty.net/onestop/onestop.asp, and http://www.baltimorehousing.org/permit_procedure.

The first amendment states: “Congress shall make no law … abridging … the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”.

Bernstein L (1992) Opting out of the legal system: extralegal contractual relations in the Diamond industry. J Legal Stud 21(1):115–157

Bernstein L (2001) Private commercial law in the cotton industry: creating cooperation through rules, norms and institutions. Mich Law Rev 99(7):1724–1788

Boo K (2012) Behind the beautiful forevers. Random House, New York

Dixit A (2014) How business community institutions can help fight corruption. Paper presented at the World Bank ABCDE Conference, 2–3 June 2014. Available at http://www.princeton.edu/~dixitak/home/wrkps.html

Dixit AK (2003) Clubs with Entrapment. Am Econ Rev 93(5):1824–1829

Dixit AK (2004) Lawlessness and Economics. Princeton University Press, Princeton, NJ

Easterly W (2001) The elusive quest for growth. MIT Press, Cambridge, pp 234–235, 245–248

Edwards J, Ogilvie S (2012) Contract enforcement, institutions and social capital: the Maghribi traders reappraised. Econ Hist Rev 65(2):421–444

Greif A (2006) Institutions and the path to the modern economy: lessons from medieval trade. Cambridge University Press, Cambridge

Kingston C (2008) Social structure and cultures of corruption. J Econ Behav Organ 67(1):90–102

Kumar R (2011) Indian corruption: a time to fight back. East Asia Forum, 20 January 2011. Available at http://www.eastasiaforum.org/2011/01/20/indian-corruption-time-to-fight-back/. Accessed 19 Jan 2015

Olson M, Zeckhauser R (1966) An economic theory of alliances. Rev Econ Stat 48(3):266–279

Ostrom E (1990) Governing the commons. Cambridge University Press, Cambridge, UK

Ostrom E, Janssen MA, Anderies JM (2007) Going beyond panaceas. Proc (US) Nat Acad Sci 104(39):15176–15178

Rodrik D (ed) (2003) In search of prosperity. Princeton University Press, Princeton, pp 16–17

Shleifer A, Vishny RW (1998) The grabbing hand: government pathologies and their cures. Harvard University Press, Cambridge, pp 99–101

Xu QJ (2006) On the quality of search and governance in a relational network. Senior thesis, Princeton University

Titel: Corruption: Supply-Side and Demand-Side Solutions
verfasst von: Avinash K. Dixit
Verlag: Springer India
Buch: Development in India
Print ISBN: 978-81-322-2540-9

Electronic ISBN: 978-81-322-2541-6

Copyright-Jahr: 2016
DOI: https://doi.org/10.1007/978-81-322-2541-6_4

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