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The Simple Economics of Extortion: Evidence from Trucking in Aceh

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Author Info
Barron, Patrick
Olken, Benjamin

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Abstract

This paper tests whether the behaviour of corrupt officials is consistent with standard industrial organization theory. We designed a study in which surveyors accompanied truck drivers on 304 trips along their regular routes in two Indonesian provinces, during which we directly observed over 6,000 illegal payments to traffic police, military officers, and attendants at weigh stations. Using plausibly exogenous changes in the number of police and military checkpoints, we show that market structure affects the level of illegal payments, finding evidence consistent with double-marginalization and hold-up along a chain of vertical monopolies. Furthermore, we document that the illegal nature of these payments does not prevent corrupt officials from extracting additional revenue using complex pricing schemes, including third-degree price discrimination and a menu of two-part tariffs. Our findings illustrate the importance of considering the market structure for bribes when designing anti-corruption policy.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6332.

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Date of creation: Jun 2007
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Handle: RePEc:cpr:ceprdp:6332

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Related research
Keywords: corruption; double-marginalization; extortion;

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Find related papers by JEL classification:
D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. Jakob Svensson, 2003. "Who Must Pay Bribes And How Much? Evidence From A Cross Section Of Firms," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 207-230, February. [Downloadable!] (restricted)
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  7. Eugenio J. Miravete, 2005. "The Welfare Performance Of Sequential Pricing Mechanisms ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1321-1360, November. [Downloadable!] (restricted)
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  14. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347. [Downloadable!] (restricted)
  15. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August. [Downloadable!] (restricted)
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  16. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June. [Downloadable!] (restricted)
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  19. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-47, March. [Downloadable!] (restricted)
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  20. Benjamin A. Olken, 2007. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," Journal of Political Economy, University of Chicago Press, vol. 115, pages 200-249. [Downloadable!] (restricted)
  21. Di Tella, Rafael & Schargrodsky, Ernesto, 2003. "The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires," Journal of Law & Economics, University of Chicago Press, vol. 46(1), pages 269-92, April.
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  24. Chang-Tai Hsieh & Enrico Moretti, 2006. "Did Iraq Cheat the United Nations? Underpricing, Bribes, and the Oil for Food Program," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1211-1248, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Abhijit V. Banerjee & Esther Duflo, 2008. "The Experimental Approach to Development Economics," NBER Working Papers 14467, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Paul Niehaus, 2009. "Corruption Dynamics: The Golden Goose Effect," Working Papers id:2016, esocialsciences.com. [Downloadable!]
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