Corruption by Design: Bribery in Chinese Enterprise Licensing

Abstract

This article analyzes as a game a common 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 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 To move away entirely from corrupt equilibria, however, requires very substantial changes in institutional design and may not be feasible through changes in formal structures alone.

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