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Consumers' Complaints, the Nature of Corruption, and Social Welfare

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  • Amegashie, J. Atsu

Abstract

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 model of corruption with incomplete information in which consumers require a government service from officials who may be corrupt. A victim of corruption can report corrupt officials to higher-ranking officials (supervisors) who may be corrupt or honest. I find that social welfare may be non-monotonic in the proportion of honest supervisors. In some cases, an increase in the proportion of honest supervisors increases social welfare only if there is a critical mass of honest supervisors. Under certain conditions, there is, surprisingly, an equilibrium in which no one reports corruption regardless of the proportion of honest supervisors although all lower-ranking officials are corrupt. The analysis shows that using an increase in consumer complaints as a measure of the success of an anti-corruption campaign may be wrong because the consumers may benefit in other ways (e.g., a fall in the equilibrium bribe). I also fill a gap in the literature by endogenizing an official's decision to engage in "corruption with theft" or "corruption without theft" as defined by Shleifer and Vishny (1993) and use the model to shed light on recent anti-corruption initiatives such as the Punjab Citizen Feedback Model in Pakistan and a recent proposal by Kaushik Basu (2012).

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 47215.

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Date of creation: 01 May 2013
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Handle: RePEc:pra:mprapa:47215

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Keywords: bribes; consumer complaints; corruption with theft; corruption without theft; Bayesian equilibrium.;

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  1. Amegashie, J. Atsu, 2006. "Incomplete Property Rights, Redistribution, And Welfare," MPRA Paper 3438, University Library of Munich, Germany.
  2. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
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  6. Abbink, Klaus & Dasgupta, Utteeyo & Gangadharan, Lata & Jain, Tarun, 2014. "Letting the briber go free: An experiment on mitigating harassment bribes," Journal of Public Economics, Elsevier, vol. 111(C), pages 17-28.
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  12. Canice Prendergast, 2002. "Consumers and Agency Problems," Economic Journal, Royal Economic Society, vol. 112(478), pages C34-C51, March.
  13. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
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Cited by:
  1. Abbink, Klaus & Dasgupta, Utteeyo & Gangadharan, Lata & Jain, Tarun, 2012. "Letting the briber go free: an experiment on mitigating harassment bribes," MPRA Paper 42176, University Library of Munich, Germany.

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