Business operations, contestability, bureaucratic holdup, and bribe solicitations

Adding to the literature on factors driving corruption and bribery, this paper examines the effect of contestability in business operations on bribe solicitations. Contestability undermines the bureaucratic rent‐seeking potential, whereas bureaucratic holdup increases it. This paper tries to capture these influences empirically using cross‐country survey data. The results show that the relatively greater contestability of business startup procedures compared to startup regulatory times led to fewer bribe demands; however, property registration regulations with lower relative contestability led to more bribe demands, especially for import licenses. We find relatively greater support for bureaucratic holdup (i.e., time taken by bureaucratic clearances) in startup procedures than with import licenses. Finally, older and larger firms received lower bribe demands, ceteris paribus.