The Pitfalls of a Partially Honest Bureaucracy: Bribery, Inefficiency, and Bureaucratic Delay

Abstract

Bribery, it has been argued, allocates resources efficiently. We show that this conclusion need not hold in a dynamic extension of a simple static model in which it does. When permits are awarded over time and applicants can reapply, a partially honest bureaucracy results in inefficiency. This can take the form of both misallocation and bureaucratic delay, both of which are strategic maneuvers by dishonest bureaucrats to increase bribery income. Efficiency is a non-monotonic function of the fraction of bureaucrats that are honest. Consequently, small differences in monitoring costs may lead to very different optimal levels of corruption.