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Applied Micro Workshop – Raúl Sánchez de la Sierra, “Corruption in Hierarchies”

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Raúl Sánchez de la Sierra and Kristof Titeca: “Corruption in Hierarchies” We gain access into and experiment with a traffic police agency battalion to analyze the economics of corruption in a hierarchy. The organizational and incentive structure of the battalion resembles that of a gang. Commanders offer their protection to street-level agents. Protection enables the agents to collect stable revenue through a bribing system institutionalized as toll fees. In exchange, the agents must detain a pre-agreed number of drivers every day, which they escort to the police station for the commanders to take bribes (the quota system). This finances respectively 94% and 79% of commanders’ and police agents’ income, respectively ten times and 64 times the city minimum wage. Guided by a simple contract theory model, we present three findings. First, quota levels across locations are consistent with maximization of corrupt revenue. Second, we disincentivize bribe-taking effort by doubling the daily income of street-level police agents. This decreases harassment of drivers, attendance and quality of traffic flow worsen—demonstrating the link between decentralized corruption and public service. Third, commanders are able to “tax” 29% of this extra income, and their taxation halves the effect of extra income. Furthermore, experimentally lowering quotas decreases traffic congestion and harassment of drivers. Our results suggest that rent-seeking and contracting frictions alone can explain the individual and collective behaviors that we observe in this battalion.

Event details
What
  • Presentation
When Oct 17, 2019
from 16:00 to 17:30
Where briq, Seminar Room 9/1.1, Schaumburg-Lippe-Straße 9
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