To Reduce Bribery, Make it Legal

India’s chief economic adviser Kaushik Basu argues (pdf; WSJ report) that to reduce bribery we should make the paying of bribes (not the demanding!) legal.

Under the current law…the bribe giver and the bribe taker become partners in crime. It is in their joint interest to keep this fact hidden from the authorities and to be fugitives from the law, because, if caught, both expect to be punished. Under the kind of revised law that I am proposing here, once a bribe is given and the bribe giver collects whatever she is trying to acquire by giving the money, the interests of the bribe taker and bribe giver become completely orthogonal to each other. If caught, the bribe giver will go scot free and will be able to collect his bribe money back. The bribe taker, on the other hand, loses the booty of bribe and faces a hefty punishment.

Hence, in the post-bribe situation it is in the interest of the bribe giver to have the bribe taker caught….Since the bribe taker knows this, he will be much less inclined to take the bribe in the first place. This establishes that there will be a drop in the incidence of bribery.

Basu notes that he intends this to apply to bribes where the person paying the bribe is receiving only what they are entitled to receive, e.g. when you have to bribe to get a business license that you are entitled to or to get your rice rations or get an income tax refund.

Hat tip to Sanjiv.


There is a cost to turning over the bribe receiver to the authorities where the relationship between the parties is a continuing one. That is almost always the case with small regular paperwork (i.e. bills,permits, licences etc.). It's helpful when paying a bribe to know who to pay, the going rate and the effectiveness of paying that person compared to the risks of talking to a completely new person each time.

There's also a cost associated with turning the receiver to the authorities, in that the paying party runs the risk that the benefit he took from the bribe will be undone. Telling the cops that I paid someone a bribe so that I could get a business license of some sort would be pointless, because I would probably lose the license that I paid the bribe for. The author assumes that reporting a bribe that one has paid will always be a Pareto superior move, but it is probably often not the case.

Good idea overall. One strategy to defeat it: Demand a bribe but always insist on giving the briber more than he is entitled to. Allot him 10 lbs of rice rather than the 5 lbs he is entitled to.

Would that strategy work? Even if the official gives 10 lbs, the bribe-payer can always blackmail for more once the bribe is paid. 15, 20, 25lbs... there's no way for an official to stop being beholden to someone who has bribed him, because it's impossible to enforce an agreement with the person not to turn him in.

Of course, seeing that, the official will be unlikely to accept a bribe to begin with.

Laws in India are strange. It is one of the few nations where "attempted suicide" is still a crime. This law, in fact, is of of the greatest source of bribes for low ranking cops. Morally unpalatable but has some deterrent value.

How do you avoid entrapment?

Isn't Entrapment a concern only if initiated by a government agent?

"To Reduce Bribery, make one half of it Legal"

that's interestingly similar to the Scandinavian approach to prostitution, which (heavily) criminalizes soliciting prostitution, but not, as I understand, offering it.
Overall asymmetrical criminalization seems like a good idea for cases where one party to an act that's deemed undesirable is in a much weaker position.

Not a comparison that raises great hopes I'm afraid. The number of convictions for prostitution in Scandinavia are ridicously low.

Although the two cases are quite different; the prostitute, in fact, has very little (if no) incentive to accuse the buyer of her services as ratting on your clients is very unlikely to improve your chances of doing more business...

Of course we have already made bribery legal here in the US: it was called the Citizens United decision.

That's incoherent even as trolling

I don't think it's trolling at all. I was going to say something along the same lines. In this country, we have the right to free speech, but Citizens' United pretty much guarantees that we have to pay for what we are entitled to. And it is a competitive market, so the price will keep going up.

This makes no sense. How is a corporation exercising a constitutional right to political speech like a bribe AT ALL? What is it that you are supposed to get for free? A platform for your political speech? No. That isn't what "free speech" means. And how are corporations now extracting tribute from you for your speech? In fact, there is no transaction between you and these corporations, as you are both side by side in "a competitive market", as you said.

Even if you think Citizens United is the worst thing in the history of the world, it has nothing to do with this post.


Since when are competitive markets characterised by increasing prices?

Not at all. Unrestricted lobbying and campaign contributions are a legalized form of bribery. It's trading money and network favors for bureaucratic and political action. If you think that a congressman will still make an honest and fair vote on an issue after having received a half million in campaign funding and a "strong recommendation letter" for an industry executive position upon retiring from Washington, I have a bridge for sell that you might be interested in.

Which is precisely why I think political campaingning should be outlawed.
Imagine a scenario where instead of campaigning the candidates had to publish a resume and term plan, just like any other person looking for a job.
While campaigning they are asking the people (actual bosses) to give them the job. Well, let the parties pick their candidates, prepare the CV and the term plan, let all sources available investigate such resume (if there are lies it would mean a jail sentence), them publish the CV, free of charge, in the newspapers in the areas of interest, once a month, 6 months before elections. One month before elections the national or local TV stations would conduct debates between the candidates, sort of a "job interview" if you may, during which the willing public could participate and ask questions.
Problem solved. Elected officials would go into office owing no favors to no one, and the public would have a written document of all promises made before election.
Will this fly? Not in a million years.

@Rahul Technically, yes, it's only a concern if initiated by a government agent (which is bad enough, I would think), but this would make it possible for me (or me in an alternate universe who has a lot of money) to bribe, then to threaten exposure with no fear that that exposure will hurt me. It might work out better than the current system, but it's not clear to me that it would.

Maybe, with a strong enough enforcement of the "only for things you were entitled to anyway" this would devolve into wealthier people being able to expedite service for a larger fee -- which many countries already have.

You have a point.

"threaten exposure with no fear that that exposure will hurt me." will not be easy. We still have recourse to blackmail statutes.

In any case, Entrapment in the weaker non-legal sense is already possible using a host of other crimes. For most crimes (murder, assault, theft) only one half is illegal. I suppose I could tempt someone to ride away on my unlocked bike and then threaten exposure. May not be as easy as the bribing context.

" make it possible for me ... to bribe, then to threaten exposure with no fear that that exposure will hurt me."

The official in question can refuse the bribe.

In cases where bribery is enforced by one's superiors, the official could refer the briber to his superior, who, if corrupt, would be pleased to take the entire bribe, instead of just a share of it.

It is the right thing because the briber isn't doing anything wrong.

So, bribing the Pakistani military to increase their wealth and power and ability to use terrorism for their purposes, bribing Qaddafi and his family to gain access to Libya oil money and increase his grasp on Libya, bribing Mexican cops and officials to protect drug and human trafficking operations, and so on, should be legal, relying on the Pakistani military dictators, the Qaddafi dictatorship, and the corrupt Mexican law enforcement and officials to enforce the laws prohibiting corruption??

The true moral hazard since the 80s has been the view that "money" and "morality" are totally unrelated, that profit is virtue no matter how it is gained because morality has nothing to do with profit.

Clearly murder for hire should be legal for the one hiring the murder, with the murderer, if caught, being forced to give up the payment, and also suffer the penalty for the murder alone.

That's the largest straw man I've seen in a while.

We aren't talking about murder-for-hire. We're talking about going to the DMV, but not being allowed to take the test for a driver's license until you've paid a bribe. Then not having your test graded (not rubber-stamped approved, just honestly graded) without a bribe. Then not receiving your license without a bribe.

We're talking about not being allowed to exercise your rights as defined by law through the bureaucratic process without bribes.

If he doesn't know what he's talking about, don't expect him to know what everyone else is talking about.

Also, wtb proper term usage:

His use of 'moral hazard' works in that he's opining that the view from the 80s onward has overemphasised risks associated with money and underemphasised the risks to his definition of morality.

That he ignores the fact that this law only applies when a bribe is paid for services that the briber is entitled to is his fatal flaw as, unless I'm mistaken, no one is entitled to the protection of drug and human trafficking, Libya's oil fields and so on...

What an incredibly good idea.

Yes, "there is a cost to turning over the bribe receiver to the authorities where the relationship between the parties is a continuing one", but there will always be a few bribe-takers who can take advantage of this opportunity, and it only takes one to ruin a bribe-demanders day. The credible threat of being exposed and punished would always be there, that's what matters most.

This is the same argument that I've heard put forward to suggest legalizing prostitution, while upping the consequence of hiring a prostitute. It's simple supply-side economics.

The idea is appealing but I am not so sure it will have such a huge impact in India. If you track bribe prosecutions in India they are anyways rarely against the bribe givers. The challenging part is not that the accused will point fingers against the bribe giver. This rarely happens. The problem is proving that the accused actually accepted the money. Indian law courts are hugely backlogged, oral evidence from police officers is not considered acceptable, confessions are only valid if made before a magistrate, witnesses turn hostile or can be bribed suborned etc. The problems are more of implementation: unprofessional policing, backlogged judiciary, and bad evidentiary practices than a point of law.

One practical problem is that the currency offered as a bribe is immediately sealed and held by the investigating officer as evidence. If a court case takes 10 years the poor man practically lost his money. There are horror stories of rats eating through bags of evidence.

Conversely, this would make bribe-takers completely beholden to the interests of the original bribe-giver. This would have the potential to give moneyed people way to much power over anyone in a position to abuse their power - especially if the bribe-taker is in dire need of the funds.

One would have to expect very high standards (probably education, job loyalty and an appropriately high rate-of-pay) among potential bribe-takers for the projected outcome to really materialize - and even then I think its pretty unlikely to turn out right.

Did it take into account the rise in the murder rate to keep the bribe takers quiet... very quiet?

the model simplifies the corruption market considerably. for any anti-corruption (to contain harassment bribes) strategy to be effective, the bribe-taker and bribe-giver have to be respectively deterred from taking and giving bribes, and the enforcement machinery has to be responsive to those complaining to them and actively pursuing those suspected of taking bribes. Piece-meal administration of elements of this complex strategy is certain to fall flat, far from causing any "dramatic drop in the incidence of bribery".

1. Prof Basu's arguement makes the same mistake as other standard models that explain corruption. It overlooks the supply-side (bribe-giver) incentives and remains confined to the demand-side (bribe-taker). It needs to be borne in mind that apart from officials demanding bribes, harassment bribes are also paid because people are willing to pay a higher price (than the official fees) to access the service at their convenience. Merely addressing the demand-side incentives, while over-looking (and in this case, maybe, even furthering) the supply-side ones, is not likely to deter bribery.

2. Any amendment to the Prevention of Corruption Act (PCA) 1988 by repealing Section 12 (which defines the punishment to abettors) should have no effect on the incentives of those bribe-givers who bribe with an intention to trap the official. This category of bribe-givers are already protected by Section 24 read with the Supreme Court judgements indicated in Prof Basu's paper. This protection comes if the bribe-giver is able to establish that "the bribe was given unwillingly and in order to get the public servant trapped". This is all the more easier to prove in case the bribe-givers are planning to trap the official with help of the local anti-corruption agency. Even without any amendment, the bribe-giver has the freedom to complain before the anti-corruption agency and lay a trap to catch the bribe-taker. In the circumstances, the amendment, atleast theoretically does not change the incentives of the bribe-givers.

3. The model suggested by Prof Basu gives excessive weight to incentives and assumes that changing those incentives will alter the bribe taking and giving environment. this overlooks the critical role of enforcement. There is nothing secretive about corruption in most government offices. It is part of the local gossip - who takes money, how much, through which channel, and so on. All anti-corruption agencies are well aware of this. It is only that they choose not to act unless prodded by a specific complaint.

4. There is the challenge of reforming a system where deviance is the norm. Standard models of addressing corruption works under the presumption that corrupt practices exist at the margins or are not widely prevalent. In such circumstances, the fear of being caught is large enough to deter bribe-taking at the margins. However, when the practice is so widespread as to be a norm, conventional regulatory and incentives driven solutions become toothless. The deterrent effect of being caught is attenuated when the bribe-taker realizes that his actions are similar to that of the majority of his colleagues.

5. Finally, there are perverse incentives associated with such changes, which are likely to harm the morale and fabric of the bureaucracy. It would come as a surprise to many readers to know that a not insubstantial number of such trappings across all states are motivated by work-place rivalries and social factors (caste politics). In fact, at the lower levels of the bureaucracy in rural areas, such threats are used to blackmail officials indulging in petty corruption.

i have blogged in detail here

YES!!! You are so right!

I travel to India often and you really can't underestimate how important it is for my family to be able to PAY bribes to get things done.... Otherwise it's just too inefficient. ... And anyway... are they even bribes, they are "expediting fees"...

Your point #4 is spot on... this is the norm there now.
Your point #5 is excellent as well... hadn't thought of that.

Anyone know of other countries where only the bribe taker is penalized, not the forced bribe-giver? I bet there are others (and I bet we can then practically point out how little impact that's had)

None of those makes the idea harmfull. Some may make it innefective (but if society can't prosecute bribe takers at all, any idea would be innefective, not just this one), but they are likely not absolute truths (said by someone that doesn't know India).

1 - The idea clearly doesn't apply to people that used the bribe to get something they shouldn't get. It is written there, in plain english.

2 - Maybe. (What law is that? Indian?) But it will have an impact on those people that give a bribe without the intent to entrape the bribe taker, and changes his idea later. That may be a trivial amount of people, but (assuming some level of corruption at the police force) I doubt it.

3 - It is focused on incentives. If you want to make a proposal with another focus, you are free to do so. Just don't pretend that incentives make no difference at the final result. By the way, sending everybody to jail, like you favor only has an impact because it changes the people's incentives.

4 - There is where you say the situation is helpless. Well, if it is really helpless, nothing will help. I doubt it is absolutely helpless, but I may be wrong, I don't know India.

5 - I just fail to see how sending people that paid extorsionist to jail, when they got nothing ilegal from the deal can improve the moral fabric of society. The police should be more focused on sending the extorsionists to jail, not their victims.

A very good response, thanks for sharing! This in particular backs up my point above:
"Merely addressing the demand-side incentives, while over-looking (and in this case, maybe, even furthering) the supply-side ones, is not likely to deter bribery."

On it's application to prostitution. One of the little known facts about Canada is that paying for sex isn't actually illegal, just the activities surrounding the sale of sex is illegal, like soliciting, pimping etc. As far as I know it's a historical coincedence of Canadian law and wasn't consciously designed with this mans idea in mind. As such this post has been an eye opener. Does any body know the rate of pr

"the interests of the bribe taker and bribe giver become completely orthogonal to each other"

I don't understand what "orthogonal" means in this sentence.

I took it to mean that the parties are no longer in a partnership, but that their interests vary independently of one another.

That would ordinarily be my understanding as well, but he argues that the bribe giver would want the bribe taker to be caught. That doesn't sound as though their interests vary independently of one another.

You're right, but the word is used quite inappropriately in this piece. "Orthogonal" means completely independent. In other words, the bribe giver has no financial interest in whether the bribe taker is caught or not. However, in this case he clearly has a very great interest in seeing the bribe taker caught and his bribe monies returned to him. So "opposite" would be better than "orthogonal" in this context. In geometric terms it is the difference between 90 degrees and 180 degrees.

This is a commonly bungled affectation among people wishing to be perceived as educated, much like most uses of the word "decimate," or pronouncing "processes" to rhyme with "cheese."

Yeah. He was only 90 degrees off! His statement was orthogonal to what he meant to say.

I think "decimate" can be fairly said to have taken on meaning beyond "reduce by 10%," just as you can subjugate a group of people without actually making them walk under the jugum.

I always thought orthogonal meant perpendicular/at a 90 degree angle. So orthogonal interests would be at completely cross purposes. 180 degrees would be parallel, right? Not completely opposite. If you are thinking of interests as lines, anyway, and otherwise how does it have any meaning? Saying a point is 180 degrees from another point doesn't make a lot of sense.

To keep it geometrical, at first the briber and bribee are parallel lines, after, they became perpendicular lines or at least lines that intersect. To become orthogonal one of the lines would have to go into the third dimension. All lines not parallel intersect in Euclidean Space. Agree word is used inappropriately.

It's a completely stupid idea that completely ignores the real world. In a world where you have to pay bribes, you don't just pay one bribe one time. You need to be able to pay bribes continuously. Imagine that you pay a bribe, then shaft the bribee. Bribee goes to jail. Next time you go to do your business, who's going to "help" you?

My understanding is that most low-level bribery in a country like India is done in order to avoid various cumbersome regulatory steps that are technically required. If getting a license to operate a small business (say, a small storefront) requires completing a carbon emissions statement, a study of the impact on traffic of opening the new store, a bunch of forms to register with various taxing authorities, and a test to measure your knowledge of workplace safety rules, you pay a bribe for some official to overlook the fact that you haven't done all these things and grant the license anyway. In that case, there is no amnesty for the person offering the bribe because he's clearly getting something that he's not entitled to.

In fact, if most bribes are of this form, you create perverse incentives to ratchet up the red tape. If you're concerned that your bribe income for granting business licenses is going to dry up, you'd want to ensure that no one was ever actually entitled to a business license. The easiest way to do that is to invent additional forms that need to be filed or to ensure that forms will always be filled out incorrectly. That ensures that people will continue to need to bribe you to get their licenses and that they'll be unable to claim that they were actually entitled to the license without the bribe.

During national alcohol Prohibition in the US, it was illegal to sell alcohol but not to purchase it. The one-sided enforcement didn't seem to do a great deal in terms of suppressing the trade.

I think the solutions is only a solution if one thinks of a one interaction game. If repeated play is assumed then it's not in the interest of the bribe-maker to defect.

I thought Citizens United made it legal for businesses to give money to politicians. Oh, I'm sorry, that large cash contribution to pay for your advertising is not a bribe. Excuse me.

In India, they should just get someone to call it free speech.

We have much we can export.

But, it doesn't make that legal, does it?

Let's back up - what's the problem with bribes? If it's to jump queue when the queue is full, aren't bribes more efficient? If the bribes are happening when the queue isn't full (e.g. to get around licensing requirements, as mentioned above) then it sounds like the bribe-takers just need more competition. Could you have multiple independent places issuing the same licenses?

Since when does jumping ahead in a queue make that queue more efficient? It might make the queue jumper's experience more efficient but to the detriment of those behind her, both in terms of the time they've wasted in that particular queue and in undermining the structure of the queue...

Frankly, this solution is flawed for a variety of reasons.

1) In a enormous number of instances the party at "fault" is the bribe-giver (I.E) "My son is a rather poor cricketer, but he thinks he's really good and he won't be able to impress his girlfriend unless he is on the team. Please take these Rs 25 lakhs and make sure he's on the Delhi Ranji team". (Things like this really do happen in a variety of fields as varied as college admissions, passport services, expediting visa process, businesses fighting to keep illegal constructions, selection to sports teams, bribery of witnesses, clerks and other persons involved in the law enforcement process and probably thousands of things I am not aware of). Bottom line pretty much anything can be bought for the right price. As a consequence, a lot of the bribe industry emanates from the people in power and often the bribe-taker may be quite afraid of angering powerful people in a country rife with corruption. This entire portrayal of bribery being only a situation where beaureaucrats hold starving peasants to ransom is a result of disproportionate focus on those incidents.

2) Bribery is often a response to the fact that the quality of public service is so exceptionally poor that only enormous amounts of money will get you efficient service. Here bribery is just jumping the queue and masking the real problem, which is that if there was no bribery, nobody would get effective service.

3) This creates a situation where people can randomly blackmail other people with the threat of going to the cops with "I gave you a bribe" without risking anything. Even more perversely they can threaten to do this if the person actually refuses the bribe.

4) In a vast majority of situations this relationship is a continuing one and therefore the game-theoretical approach adopted here doesn't work, because in the long term there is simply no benefit to screwing over the guy who gets things done for you, especially since reporting the guy to the cops and giving evidence etc. is simply a waste of your (hopefully) valuable time.

1) Please note that this provision only impacts those who are paying bribes for services they're entitled to, unfortunately for many of us impressing our girlfriends is not an entitlement under law

2) Partly true in that jumping the queue helps the jumper but it also makes the rest of the members of the queue's experience worse

3) I'm not sure how this provision increases the risk of blackmail, one is just as likely to threaten to charge an official with taking a bribe when they have not now as one will be under this new law

4) Yes, but only if no one else provides the service that person provides and if you need that person's services in the future. Perhaps I will not take the person who I have to bribe on a regular basis to court but if someone bribes me for a one off service than I can take him to court.

Much as I have a high regard for Kaushik, he is wrong. Two issues are involved:

a) Game theoretic. The idea of exposing the bribe-taker will not arise in a repeated game scenario of crony-capitalism that is typical of India (with people from the top to the bottom FULLY engaged in repeated games of corruption)

b) Hopeless justice system. Even under the current system it is theoretically very easy to trap the bribe-taker. All you have to do is to go the local magistrate who will sign on the currency that is to be delivered as bribe, send a police officer and another magistrate to sit behind the scenes, and trap the bribe-taker. As Additional District Magistrate (and later District Magistrate) I have personally got this done and caught red-handed (is the word) officers working under me. I got one person put behind the bars for 14 days.

What was the result? In each case the bribe-giver paid off the 'system' (politicians/bureaucrats/judges) and escaped scot-free.

Basu's idea is wrong. He is chief economic adviser but he does NOT know the cause of India's corruption, living in an ivory tower.

The detailed causes of India's corruption are outlined in chapters 4 and 5 of my book, Breaking Free of Nehru (, with detailed - PRACTICAL - solutions in chapter 6.

Basu (or anyone who wishes to ACTUALLY solve the problem of corruption in India) is well advised to read these three chapters.


Indeed, and call the bribes donations. Nobody will blink an eye.

its a sound idea dat doesnt work lik a 'draconian law' as is rite now - to punish bribe giver (most often th desperate party) which reflects things as they 'ought' 2 b..
Rather an idea that reflects upon things as they are n wat best could b done about it!! Neithr its a compromise on th morality of bribery as this law is intended to applicabl only 2 situations wher th briber has th right 2 service he bribes for and is denied!! Hence it is Power 2 th people

On th other hand - this law I believe though, ther's a second part of th law missing ::

When th briber bribes a person in position to alter th gifts/service that dat th briber had no right 2 receive in th 1st place, th latter shouldnt b punishd - hence th crime lies wit th briber :: th exact opposite of th proposed law as th scenario is reversed e.g Imagine a poor middle class govt. official or such persons wit no recluse 2 clout or power is threatened to accept th bribe by a local politico or a thug or some such power laden brat - th crime ofcours lies with th latter n th law will reflect it.

I don't think it'll work. 1) A bribe is usually an underhand
transaction, not one supported by documentation. As a consequence, the
person reporting the bribe has little proof of having paid a bribe.
This immediately brings in the question of ulterior motives of the
reporting person, and false accusations. And even if as Basu suggests,
penalties are beefed up for false accusations, you are involved in a
case where two people are accusing each other of slander with no
evidence one way or the other. That wouldn't make much headway in an
efficient judicial system even, let alone a snail-paced one. 2) The
highest levels of corruption are in the policing system. Where does
one report those? This question is at the root of the issue of
corruption. 3) A bribe is far too commonplace an occurrence for our
judicial system to ever keep pace with the rate of cases, even if we
did get around to trying to implement this in a hypothetical faster-
paced judicial system. 4) This does not address the biggest levels of
bribery (in terms of total sums) which occur at the highest levels of
power, whether corporate and political, which cannot be
disincentivised by laws in a nation where clout triumphs all. 5)
Also, keep in mind that bribes are not always a transaction between a
victim and the victimiser. Several bribes are paid simply to break the
law. For instance, most people would rather pay a 100 rupees bribe
than a 500 rupees fine for a traffic light violation.

If you are looking for real solutions to stem
bribery and corruption, starting from the highest level down, I
suggest this: Increase all ministerial pay at least 5 to 10 fold.
India has amongst the lower ministerial pays in the world. Accountability has to trickle top-down in the power
chain. If ministers are disincentivised from crony capitalism with
high salaries, they are more likely to do their job and consequently
hold their public servants accountable. The same must be done with the
policing system pays.

I have an idea for stopping corruption in India. Dismantle the License Raj. Pretty easy but this statist professor seems to have missed that.

This is already the case in academia. If a student offers a professor sex for a better grade, the student has no incentive to not report the professor afterwords, if the professor agrees to the deal. So, as a result, professors (even morally deficient ones) will reject sex-for-grades deals, because there is no way to enforce silence in the contract.

The student who reports the professor is rewarded, and the professor is severely punished.

Will this really work all the time ?
Let the bribe giver should have this options, either reveal himself and get the money back or keep himself anonymous and forget the bribe money !! What if the bribe taker is innocent and dude to a personal vendetta the bribe giver poses as if he is one even though he is not ?

After reading all the outcry on the web against corruption, it is good to find a technical discussion which tries to address how to resolve corruption. It seems there are two types of corruption. In one type, the service provider (a govt agency) denies service to the consumer, which he is rightfully entitled to. In the second type, the service provider provides a service to the consumer, that he is not entitled to. In the first instance, the service provider is abusing his/her power. In the second instance, the two parties are gaming the system.

From a game-theoretic perspective, the first type would be a win-lose game. The service provider wins something (money) that he is not entitled to and the consumer loses something (money) that he should not have lost. The second type is a perverse win-win situation for both, since both end up winning something that they are both not entitled to.

The objective would thus be to change the rules of the game so that a win-lose game is converted into a win-win game or a lose-win game (note: the consumer should win in this case, irrespective of what happens to the provider). Similarly, in the second case the perverse win-win game should be converted into either a lose-lose game or a win-lose game (note: the consumer should lose in this case).

For resolving the first type of corruption, I was thinking along a model based on insurance (which essentially translates into higher taxation, but also results into a service fee based compensation for the govt employee). The second type of corruption is more difficult to crack. Here's what I was thinking ...

Just like you have life insurance, auto insurance and health insurance, you can have graft-insurance. Whenever you go to a govt office to obtain some service, you could provide them with your "graft-insurance card". The govt can then charge the insurance provider the requisite bribe. The insurance company can negotiate better terms with the govt and it might even actually try to seriously reduce corruption, since it has a financial incentive to do do. As a consumer you would pay an annual premium to the company. Those who need to bribe often would pay higher premiums than others. e.g. if you are businessman, you would be paying much higher premium than ordinary folks. This would also be an incentive for people to not depend much on the govt, thus not have to pay high premiums. So, both the insurance company and the consumer would try to persuade the govt to hire more honest workers. In fact, the govt itself could run this insurance company and call the premiums a "service tax", which would be levied based on how much expensive use you make of govt services. The govt insurance company would then be paying a "service fee per transaction" to the govt agency which provides the service. We would thus have a system where there are no bribes to be paid, only taxes and these taxes would be reflective of the real cost of governance. We can become free of corruption, without actually eliminating it! (In some sense it would be like the tips we pay to waiters at restaurants for providing good service that we are entitled to, except the costs are democratized so that those who cannot afford to pay them are not denied the service that they are entitled to.)

The second type of corruption is the real tough one to crack. How do we ensure that the examiner at DMV does not grant a driving license to someone who is not good at driving, especially when the examiner stands to gain monetarily? In western countries, I'd think that most cases of corruption would be of this type, especially since consumers (typically big business interests) have loads of money. In developing countries, on the other hand, both types of corruption are widely practiced and many consumers (typically ordinary people) are affected by the first type. But, then again, in developing countries poorer people seldom pay any taxes and so they have a diminished sense of "entitlement" from their governments. In developed countries, more people pay taxes and hence have a stronger sense of entitlement and will therefore not tolerate the first type of corruption, which would deny what they are legitimately entitled to.

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