Jul-Sep 2012

Kicking Back on Kickbacks: An Experiment in Asymmetric Liability

Can a radical proposal to tackle harassment bribery work in practice? Professor Tarun Jain and his colleagues conducted an experiment to study the potential impact of implementing  an asymmetric liability  policy for bribe givers and takers. In this article, he presents his findings from the study.

On the anti-corruption  website, www.ipaidabribe. com, the stories told by citizens are not of fixed sales for wireless spectrum  or mining licences, MPs who vote for cash or of bungled Commonwealth  Games, but of marriage registrars and excise officers. “The inspector who visited our factory immediately asked for R 5,000  else work will get slow down,” complained one person from Mumbai. A gentleman from Erode who explained to the inspector that a bribe demand of R 750 was unjustified since the passport fee itself was R 1,000 was warned that he would never receive his passport. One perceptive (and perhaps heartbroken) suitor wrote about marriage registration, “I was asked a minimum  of 500 in order to get an inter view with the magistrate. But at the end I didn’t get married, so should I ask for a refund?”

It is difficult  to match the corrosive impact that daily demands  for petty bribes have on the economy. Not only do these demands  grate on our sense  of justice, but they also have a potentially large economic impact in terms of lost enterprise and productivity. Such harassment bribes, where officials hold up paperwork in order to extort bribes from citizens, are ignored in the media in favour of bigger scams involving multiple crores of rupees. The anti-bribery laws are of no help. The law views citizens who pay bribes as willing participants, and therefore, as equally liable and subject to prosecution. So citizens are reluctant to come forth, except on lowcost platforms such as ipaidabribe.com.

In 2011,  the then Chief Economic Advisor to the Indian government, Kaushik Basu, suggested “a small but fairly radical idea” to combat harassment briber y. Obser ving that treating both the bribe taker and the bribe giver as  liable  for corruption   creates  a large disincentive  for citizens  to report the transaction, Basu proposed  that the law should  be amended so that only the bribe recipient is liable and prosecuted whereas the giver is offered  impunity. This way, Basu reasoned, upset and enraged citizens who are held up by corrupt  officials have an incentive to report the bribe transaction after it has taken place.  Officials, realising that the citizens are more likely to report them, will calculate  that they are more likely to get caught and reduce their demand for bribes as a result. Taking the argument to its conclusion, Basu predicted that implementing  the asymmetric liability policy will yield no harassment bribes in the long term.

Basu was careful  to point out that his proposal did not apply to collusive  bribes,  where  a citizen (or businessman) conspires with officials for preferential treatment, say  in awarding contracts.  In collusive bribes, both the official and the citizen are better off after the transaction; instead, the cost of corruption is borne  by someone  else in society. For example,  if a bad driver gets a licence by bribing an official at the transport  office, then the rest of us must bear more dings,  bumps and frayed  ner ves  when this person takes to the roads.

Such asymmetric  liability rules  are not entirely novel. In the US, whistleblowers in corporate fraud cases enjoy impunity from prosecution. And officials used the same principle during the Prohibition era (1920-33),  when production, distribution and sale of alcohol  was illegal, but the consumption of alcohol was not. After all, someone was required to testify for the prosecution and who better than the customers of the local speakeasy!

Nonetheless,  a proposal to legalise bribery from a top economic advisor, even written as a personal comment, brought forth a burst of commentar y  in the media. The Economist thought it was an idea worth pursuing,  as did Le  Monde  newspaper in Paris. But of citizens  at large, 55% reported experience  in paying bribes and 63% were familiar with the anti- corruption  laws in India. To motivate participants to take their roles seriously, they received cash earnings based on their decisions in the experiment.

In the experiment, an official has the option of either providing  a service without  a bribe demand (and receiving only his salary), or asking for a bribe and potentially adding to his salary. If he decides to ask for a bribe, then the citizen chooses from three options. First, she may take a principled  stand  and

25% of citizens reported bribe demands in the symmetric case, which increased to 59% in the asymmetric case. Looking at officials, while 38% asked for bribes in the symmetric treatment, this fell to 24% with asymmetric liability as officials feared the impact of greater reporting by citizens.

Despite the back-and-forth arguments, there is scant empirical evidence to substantiate any position. Since the proposal had not been turned  into law, much less implemented  in a way that might be satisfactorily tested,  researchers cannot  conduct sur veys    of corruption levels with and without  the law in place.

To add data-driven  evidence to the debate, Klaus Abbink  and Lata Gangadharan  from Monash University,  Utteeyo Dasgupta  from Franklin and Marshall College and I conducted an experiment. This experiment   mimicked  a  corrupt transaction,  with student participants from three major universities in Hyderabad in the roles of citizens and officials. Lest anyone think that the students are not representative refuse to pay. Consider  taking an injured relative to a hospital  and being faced with a bribe demand for admission. In this case, refusing to pay might lead to considerable  delays in treatment and worse health outcomes.  So such a stand would be ver y costly  to her even though the moral point is made. The second option  is to pay quietly, whereas the third option  is to pay but then report the transaction. In both cases, prosecution   is  probabilistic  in line with Dreze’s critique,  but the chance  of success  is  40% if  the citizen reports the transaction and 5% if she does not. There are two versions of the experiment – first with symmetric liability where both the official and citizen are prosecuted (the status quo) and second where only the official is prosecuted  (Basu’s proposed  change).

We found strong evidence that Basu’s proposal works. 25% of citizens reported bribe demands in the symmetric case, which increased to 59% in the asymmetric  case. Looking  at officials,  while 38% asked for bribes in the symmetric treatment,  this fell to 24% with asymmetric liability as officials feared the impact of greater reporting  by citizens. Interestingly, the moral “refusal to pay” did not change significantly as we switched between the two versions (17% versus 19%), suggesting that the law is not a strong guide to moral behaviour.

What about Dreze’s objections  that officials might harass citizens who report bribe demands? If a citizen reports a telephone linesman for demanding a bribe, and the linesman  is not punished, the citizen might find herself with no phone ser vice for a long time. To test the impact of this objection, we conduct another treatment where officials  who escape punishment can retaliate  against  citizens.  In our formulation, retaliation is never an optimal strategy, but hangs as a threat that can be used by a vengeful official.

We find that the impact of asymmetric punishment is  mitigated   considerably   when retaliation  enters the formulation.  Only 42% of citizens report bribe demands and 37% of officials demand  bribes.

These results find something for ever yone. Basu’s proposal has bite in curbing harassment corruption, but implementation  requires  a careful legal package that    protects   whistleblowers from   potential retaliation. Such measures could include anonymity for   whistleblowers,    crowd-sourced information gathering,  and frequent transfers  even among  the lower bureaucracy  to break up the networks  that facilitate retaliation. Kaushik  Basu  himself  wrote that he received a  number of letters from ordinar y citizens  across the countr y, thanking  him “for not treating me as a criminal when a government  officer came to harass me.” Since then Basu has moved on to a new job as the Chief Economist of the World Bank where he can consider his proposal for a large number of developing countries, in addition to India. Meanwhile, I hope the debate on corruption  will be informed by the results of experiments  such as ours.

Professor Jain would like to thank Sonalika Sinha for her assistance in writing, and Urvashi Jain, K Jayashree, megha Juneja and Preeti Rao in conducting the experiments described in the article.

Abbink, Klaus, Utteeyo Dasgupta, Lata Gangadharan and Tarun Jain. “Letting the Briber Go Free: An Experiment on mitigating Harassment Bribes.” Indian School of Business Working Paper, 2012. Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2166221

Basu, Kaushik. “Why, for a Class of Bribes, the Act of Giving a Bribe should be treated as Legal.” Ministry of Finance Working Paper, 2011. Available at http://finmin.nic.in/WorkingPaper/Act_Giving_Bribe_ Legal.pdf

Dreze, Jean. “The Bribing Game.” Indian Express 23 Apr. 2011. Sainath, P. “Bribes:  A Small  but  Radical Idea.”  The Hindu 20

Apr. 2011. Available at http://www.thehindu.com/opinion/columns/sainath/bribes-a-small-but-radical-idea/article1712689.ece

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