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Bribery versus extortion: allowing the lesser of two evils

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  • Fahad Khalil
  • Jacques Lawarrée
  • Sungho Yun

Abstract

Both bribery and extortion weaken the power of incentives, but there is a trade-off in fighting the two because rewards to prevent supervisors from accepting bribes create incentives for extortion. Which is the worse evil? A fear of inducing extortion may make it optimal to tolerate bribery, but extortion is never allowed. Extortion discourages good behavior because the agent suffers from it even though he has done the right thing, whereas a bribe acts as a penalty for bad behavior. Our analysis provides lessons to fight corruption and explanations why developed countries may have an advantage in dealing with extortion. Copyright (c) 2010, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 41 (2010)
Issue (Month): 1 ()
Pages: 179-198

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Handle: RePEc:bla:randje:v:41:y:2010:i:1:p:179-198

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Cited by:
  1. Angelucci, Charles & Russo, Antonio, 2012. "Moral Hazard in Hierarchies and Soft Information," TSE Working Papers 12-343, Toulouse School of Economics (TSE).
  2. Mishra, Ajit & Samuel, Andrew, 2013. "Preemptive Bribery with Incomplete Information," Department of Economics Working Papers 37908, University of Bath, Department of Economics.
  3. Fahad Khalil & Jacques Lawarrée & Troy J. Scott, 2013. "Private Monitoring, Collusion and the Timing of Information," CESifo Working Paper Series 4497, CESifo Group Munich.

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