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In the strictest sense, bribery is defined as the giving of money or other valuables to public officials in exchange for that official not performing his or her required duties. For example, traffic police may be paid to overlook a traffic violation, or a judge to render a decision favorable to the briber. The concept of bribery often is used outside the context of government officials to include any instance of a person disregarding the obligations of his or her position in return for a payment; for example, a salesperson may pay the purchasing manager at a client firm to continue to order their goods. A useful working definition is given by Harvey James (2002): “any payment made to an agent is a bribe if the agent retains the payment” (p. 199). A payment made to a government official that stays with that official and is not deposited into government coffers is considered a bribe.
As is often the case in economics, James’s definition does not distinguish between bribery and extortion. Extortion refers to a situation in which an agent demands payment for a good or service that the payee has a right to have without any payment; in contrast, in bribery the agent demands payment for an extra benefit. Although there may be philosophical, moral, or ethical differences between the two terms, for economists they often fall under the same category, largely because of the similar effects of these types of payments in competitive situations. If all of a firm’s competitors offer to bribe a government official to speed up the delivery of a required permit, then that firm must also pay the bribe in order to avoid falling behind the competition. Here the distinction between bribery and extortion is blurred.
Andrei Shleifer and Robert Vishny (1993) suggest that bribery harms firms more than an equivalent tax because of the secrecy associated with bribery. Government officials may encourage firms to produce goods or invest in sectors that are more easily subject to bribery. The effort to create bribe opportunities can make economies more inefficient. Paolo Mauro (1995) finds that countries with higher levels of corruption have lower investment and lower economic growth. At the microlevel, Simon Johnson, John McMillan, and Christopher Woodruff (2002) find that firms that are faced with paying bribes reinvest less of their profits back into their business. Bribery can cause firms to make inefficient decisions that can interfere with the overall growth of an economy.
International agencies such as Transparency International and the World Bank have focused international attention on the problem of bribery. Both publish country rankings based on perceived levels of corruption and bribery. Developing countries usually occupy the lower rungs of these rankings. These rankings, along with the evidence on the correlation between low growth and corruption, have made bribery a key issue in economic development. Although bribery is conceptualized as primarily an interaction between two individuals, a bribe-payer and a bribe-taker, it has far-reaching effects for firms and entire economies.
- James, Harvey S. 2002. When Is a Bribe a Bribe? Teaching a Workable Definition of Bribery. Teaching Business Ethics 6 (2): 199–217.
- Johnson, Simon, John McMillan, and Christopher Woodruff. 2002. Property Rights and Finance. American Economic Review 92 (5): 1335–1356.
- Mauro, Paolo. 1995. Corruption and Growth. Quarterly Journal of Economics 110 (3): 681–712.
- Shleifer, Andrei, and Robert W. Vishny. 1993. Corruption. Quarterly Journal of Economics 108 (3): pp. 599–617.
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