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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.

Suggested Citation

  • Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2010. "Bribery versus extortion: allowing the lesser of two evils," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 179-198.
  • Handle: RePEc:bla:randje:v:41:y:2010:i:1:p:179-198
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    References listed on IDEAS

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    Cited by:

    1. Raffaele Fiocco & Mario Gilli, 2016. "Bargaining and collusion in a regulatory relationship," Journal of Economics, Springer, vol. 117(2), pages 93-116, March.
    2. Fahad Khalil & Jacques Lawarrée & Troy J. Scott, 2015. "Private monitoring, collusion, and the timing of information," RAND Journal of Economics, RAND Corporation, vol. 46(4), pages 872-890, October.
    3. repec:eee:jeborg:v:145:y:2018:i:c:p:232-248 is not listed on IDEAS
    4. Charles Angelucci & Antonio Russo, 2015. "Petty corruption and citizen feedback," Working Papers 2015/25, Institut d'Economia de Barcelona (IEB).
    5. repec:iek:wpaper:1406 is not listed on IDEAS
    6. Angelucci, Charles & Russo, Antonio, 2012. "Moral Hazard in Hierarchies and Soft Information," TSE Working Papers 12-343, Toulouse School of Economics (TSE).
    7. Felli, Leonardo & Hortala-Vallve, Rafael, 2016. "Collusion, Blackmail and Whistle-Blowing," Quarterly Journal of Political Science, now publishers, vol. 11(3), pages 279-312, October.
    8. Mishra, Ajit & Samuel, Andrew, 2013. "Preemptive Bribery with Incomplete Information," Department of Economics Working Papers 37908, University of Bath, Department of Economics.
    9. repec:eee:jpolmo:v:39:y:2017:i:5:p:809-826 is not listed on IDEAS
    10. Charles Angelucci & Antonio Russo, 2015. "Petty Corruption and Citizen Reports," CESifo Working Paper Series 5528, CESifo Group Munich.
    11. Yun Sungho, 2012. "Costs of Engaging in Corruption: Equilibrium with Extortion and Framing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-32, December.

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