رقابت در بوروکراسی و فساد

This paper studies the consequences of introducing competition between bureaucrats. Firms are supposed to invest into eliminating negative externalities of production, while bureaucrats administer the process by issuing licences. Some bureaucrats are corrupt, that is, they issue a licence to any firm in exchange for a bribe. The competition regime is found to create more ex ante incentives for firms to invest, while the monopoly regime is better at implementing ex post allocation, that is, distributing the licences given the firms' investment decisions. Additional results on the effect of punishments and bureaucrats' rotation are provided.

In India, driving licence must be obtained at the police station of the local district where the applicant lives (Bertrand et al., 2007). In Russia, this licence can be obtained at any road police station of the region where the applicant lives.1 Does this institutional difference have any consequences for welfare and corruption? This is the main question of the paper. We study this problem in the following setup. There are firms that need a licence to produce. Firms can have either a new clean technology or an old polluting one. The legislation states that only firms with a clean technology are qualified for the licence. Firms with a polluting technology are unqualified. Production by an unqualified firm creates negative externalities. All firms have an old technology at the beginning, though can change this to a new one by undertaking a costly investment. The licensing process is administered by bureaucrats. While some are honest and give a licence only to qualified firms without bribes, others are corrupt and would give a licence to any firm in exchange for a bribe. Thus, there exist both extortion (when a qualified firm has to bribe) and collusion (when an unqualified firm “buys” a licence). The coexistence of the two types of corruption is important for our results. In the driving licence example, applicants apply for a driving licence. Initially, all applicants do not know how to drive or, at least, not enough to pass the test. They can of course take lessons to learn, but these are expensive. Honest policemen give a licence only to those who drive well enough, while corrupt policemen will try to obtain a bribe from an applicant, whether or not he can drive well. We will refer to the Indian case as the monopoly regime. In this regime the licence must be obtained from a pre-specified bureaucrat; hence, this bureaucrat has a monopoly power over the applicants in his district. The Russian case is the competition regime. Any applicant can request a licence from any bureaucrat; thus, bureaucrats compete for applicants. Reapplication to the same or another bureaucrat will involve some costs. The main finding of the paper is the following. The monopoly regime results in a better ex post allocation of licences; that is, how licences are distributed given the investment decisions of firms. While, in the competition regime, firms have more ex ante incentives to invest and become qualified. To understand the intuition for the result, consider first ex post allocation of licences. In the monopoly regime, unqualified firms cannot obtain a licence in districts served by honest bureaucrats. In the competition regime, upon meeting an honest bureaucrat an unqualified firm can reapply and reapply until it meets a dishonest bureaucrat. Thus, in the competition regime, unqualified firms more frequently obtain a licence. Now turn to ex ante incentives of firms to invest and become qualified. In the monopoly regime, the only reason to invest is to avoid costly reapplication if the bureaucrat turns out to be honest. In the competition regime, there are two reasons to invest. The first is exactly the same as in the monopoly regime: to avoid reapplication. The second reason is to increase the outside option in the bargaining with a corrupt bureaucrat about the bribe. Indeed, the outside option depends on the qualification since a qualified firm will obtain a licence (for free) if the next bureaucrat turns out to be honest, while an unqualified firm will not. Then, a qualified firm pays a lower bribe than an unqualified one. The competition regime gives an additional strategic reason to invest. The trade-off between competition and monopoly is now clear. Introducing competition will encourage more firms to invest and become qualified, but those firms that still do not invest will obtain more licences. The total effect on welfare is ambiguous and depends, among other things, on the distribution of investment costs. If these are quite low for most firms, ex ante incentives to invest are important and competition is likely to be better. If they are high and firms do not invest anyway, monopoly is to be preferred. The former case corresponds to the provision of driving licences: as almost everybody is able to learn how to drive properly at relatively low cost, ex ante incentives are crucial. Provision of passports is closer to the latter case: it is difficult to become a citizen of a country, therefore, ex post allocation is more important. An important extension of the basic model is the inclusion of punishment for corrupt behaviour. We find that it is the competition regime in which punishments have a greater effect on the incentives to invest. The intuition is that, in the competition regime, the bargaining over the bribe involves consideration of the non-trivial outside option of the firm to apply to other bureaucrats in the future, which is negatively affected by a possible punishment. Also, in this regime, extortion of a bribe from a qualified firm can be completely deterred. The optimal punishment for extortion in the competition regime is then either very low to give more incentives to become qualified or very high to deter this sort of corruption. Polinsky and Shavell (2001) also obtain that extortion should not be punished for the same reason of providing incentives for good behaviour. However, they argue that, even if extortion could be deterred, it is not optimal to do so as bureaucrats will switch to framing innocent individuals. Competitive bureaucracy is more prevalent than it may seem. Firms can usually re-register in another region if they are unhappy with the bureaucracy of their current region, for example, if the local tax authority is too corrupt or, on the contrary, incorruptible. At the individual level, in most European countries passports are provided in the monopoly regime, while in the US applications can be made in any of more than 9000 passport acceptance facilities.2 Another example is that of notaries who may or may not have exclusive territories where they certify the documents. The literature on the effects of competition in bureaucracy on corruption is almost non-existent. Rose-Ackerman (1978) was the first to suggest that competitive bureaucracy might help to fight corruption; this was then discussed in Shleifer and Vishny (1993).3 In the same way as competition among firms reduces prices of the goods they sell, competition among bureaucrats reduces the prices they charge for their services, i.e., bribes. Shleifer and Vishny (1993) say (p. 607): “A citizen can obtain a U.S. passport without paying a bribe. The likely reason for this is that if an official asks him for a bribe, he will go to another window or another city. Because collusion between several agents is difficult, bribe competition between the providers will drive the level of bribes down to zero.” As in this paper, they also distinguish between corruption involving qualified and unqualified firms (they refer to extortion “corruption without theft”, as it only distributes the surplus between the applicant and the bureaucrat, and collusion “corruption with theft”, since it imposes negative externalities on the rest of the society). Introducing competition is good when extortion is present since its only effect is to reduce the level of corrupt payments. It is less so when there is collusion because, by reducing the level of payments, it allows more unqualified firms to buy the bureaucrats' service imposing larger negative externalities on the rest of the society.4 This observation has been made by Rose-Ackerman, 1978 and Rose-Ackerman, 1999 and Shleifer and Vishny (1993). However, they do not study the incentives of the firms to become qualified in the two regimes, and this is the novelty of this paper.5 No other paper, to the best of our knowledge, compares the two regimes. From the modelling point of view, the bargaining procedure between a firm and a corrupt bureaucrat is close to the one in Cadot (1987). He considers only the competition regime and is interested in how information structure of the game (that is, whether the bureaucrat and applicant himself know if the applicant is qualified) affects the delivery of the licence. Qualification is exogenous in his model. In Mookherjee and Png (1995) and Acemoglu and Verdier (2000), firms decide on their behaviour; there is, as we call it, endogenous qualification. In these models, firms may be inspected by a bureaucrat with a certain probability and, once a firm is inspected, it has to deal with a given bureaucrat. Thus, both papers have the monopoly regime; it is quite difficult to think about the competition regime there.6 In our model, there is complete information about the applicant's type. This implies that the tape red (application costs in terms of both time and money) is used only to provide incentives to the applicants for the desired behaviour; it is not used by bureaucrats to screen different types of applicants as in Banerjee (1997), Saha (2001) and Guriev (2004). Of course, both here and in those papers, red tape also makes it possible to extract bribes from applicants. Complete information about the type of the applicant also implies that, in the competition regime, qualified and unqualified applicants pay different bribes and both types are served immediately. In Ahlin and Bose (2007), in a setting similar to our competition regime, bureaucrats do not know the applicants' type and, therefore, ask for the same bribe from qualified and unqualified applicants. When the proportion of honest bureaucrats becomes higher, the reapplication becomes a better option for the qualified applicants and they may reject the bribe demand and, thus, experience a delay which may lead to a lower welfare. This effect is absent in our model and a higher proportion of honest bureaucrats always increases the welfare both by boosting incentives to become qualified and by improving the allocation of licences. The rest of the paper is organized as follows. The model is introduced in Section 2 and the equilibrium outcomes are found for both monopoly and competition regimes. Section 3 compares the two regimes and Proposition 3 presents the two main results discussed above. Section 4 introduces punishments for giving and accepting bribes. Section 5 discusses the case when the type of bureaucrats is known before applying. Section 6 concludes.

This paper studied the effects of competition in bureaucracy. The benefits are higher incentives for applicants to invest into eliminating negative externalities. Indeed, competition creates a positive outside option of reapplying to a different bureaucrat which is more valuable for qualified applicants than for unqualified ones. Then, applicants pay different bribes depending on whether they are qualified for the licence or not and this makes the investment to become qualified more profitable. The costs of competition are higher chances to obtain a licence for those who do not invest since they can continue reapplying until they meet a corrupt bureaucrat that will sell them the licence. Until now, the literature has focused only on the costs. And though it considered lower bribes due to competition (that we also obtain), it did not recognize the differential impact on qualified and unqualified applicants and, therefore, the positive effect on incentives. Another new and important result of the paper is that punishments for corruption are more effective under competition since the benefits of a corrupt transaction are smaller and more easily destroyed. In this paper we abstracted from some important dimensions along which the monopoly and competition regimes may differ. In particular, introducing competition may give the government more scope for benchmarking the bureaucrats. In the context of this paper, however, competition does not seem to allow the better detection of corrupt bureaucrats as the performance of bureaucrats is qualitatively the same in the two regimes. Indeed, in both regimes, dishonest bureaucrats give more licences than do honest ones, and the rejection of an applicant reveals that the bureaucrat is honest. If the government makes such conclusions, corrupt bureaucrats will reject some applicants to pool themselves with the honest ones. If some frictions are introduced in the bargaining process, for instance, asymmetric information as in Cadot (1987), corrupt bureaucrats will reject some applicants in the equilibrium. Several directions are promising for future research. People are not born bureaucrats or entrepreneurs, they choose the activity comparing the expected incomes. The number and the types of bureaucrats are then endogenous. In Drugov (2007) we analyzed such a setup and found that competitive bureaucracy results in more honest bureaucrats in the equilibrium in some cases. The analysis was very basic but the framework could then be extended to consider optimal policies with respect to the bureaucrats' salary, size of the bureaucracy, fines for unqualified applicants, etc. in a way similar to Acemoglu and Verdier (2000). Another direction is to introduce imperfect information about applicants' type as in Cadot (1987), Banerjee (1997) and others. Applicants, and more importantly, bureaucrats often do not know whether the applicants satisfy the requirements for the licence they ask for. Bureaucrats may take a costly action to find out, as in Mookherjee and Png (1995). For example, a bureaucrat may visit the firm's site to see the technology it uses, or he can give or refuse the licence without the visit saving time and effort. It is an open question as to which regime will result in more efforts made by bureaucrats. Bureaucrats can also use red tape to find out which applicants are qualified for the licence, as in Banerjee (1997), Saha (2001) and Guriev (2004). Red tape will then serve a double goal: it will create the incentives to invest and, once investment decisions are taken, it will allow screening of applicants. Finally, optimal policy in licence administration should be also looked for. Besides choosing the regime, monopoly or competition, policy makers also choose the minimum delay between applications and the other costs of applications, that is, they choose red tape. The optimal red tape is likely to be different in the two regimes.