The Welfare Effects of Consumers' Reports of Bribery

A primary means of bureaucratic oversight is consumer complaints. Yet this important control mechanism has received very little attention in the literature on corruption. I study a signaling game of corruption in which uninformed consumers require a government service from informed officials. A vict...

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Bibliographic Details
Published in:Journal of economics & management strategy 2016-06, Vol.25 (2), p.516-534
Main Author: Amegashie, J. Atsu
Format: Article
Language:English
Subjects:
Bribery
Consumers
Corruption in government
Game theory
Studies
Supervisors
Welfare economics
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Summary:A primary means of bureaucratic oversight is consumer complaints. Yet this important control mechanism has received very little attention in the literature on corruption. I study a signaling game of corruption in which uninformed consumers require a government service from informed officials. A victim of corruption can report corrupt officials whose supervisors are negligent or conscientious but an official's type is his private information. I find that social welfare may be nonmonotonic in the proportion of conscientious supervisors. Several examples show that an increase in the proportion of conscientious supervisors decreases social welfare if the mass of conscientious supervisors is below a critical level. I find that this perverse result does not hold if (a) the bribe is very large, or (b) bribe‐giving is legalized. I also find that there is an equilibrium in which no one reports corruption.
ISSN:1058-6407
1530-9134
DOI:10.1111/jems.12149