Corruption by Design: Bribery in Chinese Enterprise Licensing
| DOI | 10.1093/oxfordjournals.jleo.a023356 |
| Pages | 167-195 |
| Date | 01 April 1996 |
| Year | 1996 |
| Published By | Oxford University Press |
JLEO,
V12
N1
167
Corruption by Design: Bribery in
Chinese Enterprise Licensing
Melanie Manion
University of Rochester
This article analyzes as a game a common form of corruption in Chinese bureau-
cracies: payment of bribes to officials for a standard good that is not
in
fixed supply
and to which those paying bribes are, in principle, fully entitled. Formal structures
and informal expectations have been identified through field research as features
of "institutional design" that indicate an asymmetric information game. Bribery is
derived as an equilibrium solution in the game. Exercises in comparative statics
reveal the robustness of bribery when game parameter values are altered to reflect
changes in institutional design. The exercises indicate that reducing corruption,
in the sense of reducing bribe sizes, is relatively unproblematic. To move away
entirely from corrupt equilibria, however, requires very substantial changes in in-
stitutional design and may not be feasible through changes in formal structures
alone.
1.
Introduction
In China, as elsewhere, the transition from socialist bureaucratic planning to
a more decentralized and partially marketized economy has been accompa-
nied by an explosion of economic crime and corruption (see Chan and Unger,
1982;
A. Liu, 1983; Forster, 1985; Ostergaard, 1986; Myers, 1989; Lee, 1990;
Sands, 1990; Liew, 1993). Official corruption, defined here as the abuse of
public office to pursue private gain in a way that violates formal rules (see Nye,
1967),
has become normal in a wide variety of different contexts. This article
explains how such corruption is sustained by restating the observation that cor-
ruption is endemic as the following proposition: corruption is an equilibrium
solution in many different games, where the game form is the "institutional
design"—which includes both formal structures and informal expectations—
of the strategic situation. Restated in that form, the research agenda for the
This article was originally presented at the 90th annual meeting of the American Political Science
Association, in New York, September 1-4, 1994. I thank David Austen-Smith, Jeffrey Banks,
Avery Goldstein, Nina Halpem, Michel Oksenberg, Derek Scissors, and David Weimer for helpful
comments and suggestions. I thank the Committee on Scholarly Communication with China for
research support and the United States Information Agency for funding.
© 1996 by Oxford University Press. All rights reserved. 8756-6222/96/$5.00
168 The Journal of Law, Economics, & Organization, V12 N1
study of endemic corruption becomes the analysis of "corruption games" in the
different institutional contexts in which corruption appears to be most common
or particularly significant. Such game-theoretic models are studies in compar-
ative institutional analysis. As they show the contribution of both structures
and expectations, they can explain how similar structures can produce different
outcomes in different contexts of expectations, which define different cultures.
Rose-Ackerman (1978) pioneered the positive analysis of corruption, with
formal models that explain corruption as a product of different organizational
arrangements. Lui (1986), Andvig and Moene (1990), and Shleifer and Vishny
(1993) present various models of bribery, also focusing on structure as a deter-
minant of corruption. Those models attempt to explain how similar structures
can produce different levels of corruption, but they ignore the role of beliefs
in producing corrupt equilibria.1 Although it is ideally suited to the study of
corruption, the game-theoretic analysis of corruption is as yet underdeveloped.
Some work has been done. Myerson (1993) develops voting games to predict
the relative effectiveness of different electoral rules for reducing corruption of
political parties. Rasmusen and Ramseyer (1994) analyze games in which the
size of legislatures, quality of voter information, and nature of party organiza-
tion explain the frequency and size of bribes paid to legislators. Cadot (1987)
analyzes a game of bureaucratic corruption under different assumptions about
the information sets of
players.
The game presented here bears only a superfi-
cial similarity to that modeled by Cadot.2 Moreover, it differs from that game
and the other highly stylized positive models of corruption noted above in that
the institutional design features of the game here have been identified through
field research.
This article analyzes as a game a routine form of corruption in Chinese
bureaucracies: payment of bribes to officials for a standard good that is not in
fixed supply and to which those paying the bribes are, in principle, fully entitled.
The specific example analyzed is bribery in enterprise licensing, which takes
place in government bureaus of industry and commerce.
The game presented here is only one of
a
number of corruption games played
in China. It is not, for example, a model of the high-level official profiteering
that partly inspired the 1989 protests (Ostergaard and Petersen, 1991). How-
ever, some institutional design features of the bribery game (e.g., information
asymmetry, monopoly power, high expected costs of citizen appeals) undoubt-
edly characterize many high-level (and other low-level) corruption games.
I begin below by identifying the characteristics of bribery in enterprise li-
censing and describe enterprise licensing in terms of the key features of its
1.
Some parts of the analysis in Andvig and Moene (1990) are game theoretic.
2.
Cadot's (1987) asymmetric game is different from the one analyzed here: an official, who
may be clean or corrupt, grants a permit to a candidate who takes a test But in Cadot's game,
asymmetric information refers only to the candidate's information about his own type, because the
corrupt official solicits the bribe. In the game presented here, the applicant knows neither his own
type nor the official's type.
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