What might cause a benevolent government to be corrupt when agents are honest? An Insight with triadic relationships

Abstract

Note: In order to make my points clear, I am providing an executive summary rather than an abstract. Executive Summary

The extant literature that seeks to explain corruption in government bureaucracies usually refers to a principal-agent framework. A government official is an agent to the public entrusted with performing tasks, but its actions and the specific circumstances are not fully observed or monitored. Thus, under such incomplete information, a “dishonest” government official either makes illegitimate claims in return of its service or engages in illegal deals with private agents looking to evade the law (e.g. tax evasion or violation of environmental regulations).

This paper departs from the principal-agent view of the incidence of corruption and examines the issue with reference to "social" relationships that are essentially "triadic" (Akerlof, 1976, Basu, 1986, 2000) in nature. I argue that, while corruption may be caused by a principal-agent problem, such a framework is incomplete as a general description of an otherwise "social" phenomenon. I show that corruption is a possibility even in the absence of such a problem— specifically under the conditions that the government is "benevolent" and its agents are "honest" (in the sense that they do not accept bribe).

I consider a game theoretic framework, utilize the concept of "subgame perfect Nash equilibrium", and demonstrate that this might stem from the ability of a third party outside the government to influence the behavior of the bureaucrat. Here, the third party acts as an intermediary between the bureaucrat and the client and is looking to induce the bureaucrat to provide a greater amount of service to its client than what it deserves, so that it can enjoy part of the benefit itself. Three alternative possibilities are examined: i) the intermediary utilizes an asymmetry of information about the eligibility of the client; ii) full information, but the intermediary brings the official under an “overt” threat of harassment; iii) full information, but the intermediary brings the official under a “covert” threat of a potential loss of reputation via its relationship with the client. Thus, the model demonstrates that the government official can be interpreted as corrupt because it is in deliberate violation of the public mission, and yet it remains honest (doesn't accept bribe), choosing only the lesser of two evils

The implication is that if corruption is a possibility under such extreme conditions then there is an infinite number of realistic possibilities where the government is partly benevolent, its agents are partly honest, and hence what appears to be an incidence of corruption by a dishonest bureaucrat is only partly so.