Comments on “Bribes for Sale”

Siddharth SharmaMarch 2011

An innovation in the measurement of corruption

• Based on transactions data provided by bribing firm

• In contrast, previous research based largely on surveys

• If the authors had relied on a survey of bribing firms (sellers):– Surveyed a representative sample of sellers– (At best) Asked “How many sales to public/private/foreign firms

involved a bribes”• Recall bias• Underreporting (+ underreporting might vary across public and private buyers)• Precise amounts of bribes and other transactions level detail?

– In practice, most corruption surveys do not ask such direct questions

Bribes are common• High incidence of bribes in sales of machinery (30-50% of

transactions, depending on the buyer type)

• What does this imply for efficiency?

– Corruption in procurement ends up distorting the price of the input (machinery)

– How does this depend on the nature of the informational asymmetry?• Do firms end up underinvesting in machinery, or buying poor quality

machinery?• Unknown: cost or quality of machinery?

Efficiency Implications• Does corruption lead to inefficiencies in the import of machinery?

– Are the ‘wrong’ firms importing?– Are importers less likely to focus their efforts on finding the best quality?

• Could the incentive to maximize bribes increase the efficiency of procurement officers?

• These implications might depend on the extent of quality variation within products, and on cost variation across importers

– A model would be useful

– Supporting evidence for assertion that competition leads to similar price and quality levels among sellers?

Bribes and Firm Ownership• Sales to government firms have the highest incidence of bribes• Sales to foreign firms more likely to feature bribes than those to

domestic firms• Seller’s profits higher in sales with bribes when sales are to private

firms (collusion)

• Are these figures representative?– Unsuccessful sales negotiations are not observed

• “Was a bribe demanded?”

– Outcome of sales negotiations correlated with demand for bribes? – Might not be an issue if the sellers are similar and compete among

themselves– Model will help to clarify the intuition

Interpreting Ownership Effect• Corporate governance: Providing incentives to induce profit maximizing behavior

– Interestingly, firm size does not seem to matter.

• Other possibilities to consider:– Low wages in government

• Summary statistics, regressions and foreign firms results do not support this low wage hypothesis

– Employee Selection (More ‘dishonest’ procurement officers in government firms?)• How much of the ownership effect is due to selection and how much due to ownership?• Government firms worse at getting rid of dishonest employees?• Is there any within-firm variation in bribes?

– Selection at the firm level: Poorly run private firms less likely to survive

• Foreign firms result suggests that localized knowledge also matters

• Information asymmetries might vary across products or industries