Download Corruption is the method government officials implore to extract

Corruption is the method government officials implore to extract rents from businesses.
This paper uses the functionalist-modernization theory of corruption to examine
governmental corruption. The primary argument is that the functionalist-modernization
approach is the most efficient method of controlling corruption. The market approach to
corruption argues that corruption is inevitable in a modern economy. Since corruption
cannot be eliminated, the market approach focuses on how to minimize its effect on a
system? Before examining methods of limiting corruption, it is important to examine the
principal-agent-client model of corruption.
The principal-agent-client model of corruption is similar to the interaction
between the government, politicians, and interest groups. The principle (the government)
employs the agent (politicians), who in turn interacts with the client (interest groups).
Figure 1 represents the interaction between the three parties
Usually, the agent put his own interest ahead of the principle’s interest. Consequently,
the principle always monitors the agent’s actions. The principle exchanges information
with the agent, who in turn exchanges information with the client. Furthermore, the
client provides the principal with information, some of which concerns the agent. This
relationship is referred to as an iron triangle (get a quote concerning the iron triangle
theory and discuss it more)(explain the importance of this principle)
Within the principle-agent-client model, corruption occurs when the client solicits
a monetary bribe to the agent. Figure 2 illustrates that the agent has the option of either
accepting the bribe or rejecting it.
His decision is influenced by weighing the payoffs associated with accepting the bribe
against payoffs associated with rejecting the bribe. The game ends if the agent rejects the
bribe. However, the agent usually accepts the bribe, because he gains nothing from
rejecting it. Figure 3 illustrates the sub-game which occurs between the agent and the
principal.
If the agent accepts the bribe, he is concerned with being caught by the principle.
Ideally, the agent wants the corrupt act to go undetected by the principle. If the principle
learns of the bribe, the agent’s concerns shift from being caught to the severity of the
principle’s punishment. If the punishment is relative small, the agent will not be
concerned with the punishment in the future.
The ideal amount of corruption in a system occurs when the cost of corruption is
equal to the cost of removing the corruption. Figure 4 illustrates that the optimal amount
of corruption occurs at q*, where the amount of money spent to eliminate corruption is
equal to the amount of money the client offers the agent to be corrupt.
The agent will choose not be corrupt at q* or any point in the shaded area below the
intersection. However, the agent will choose to be corrupt at any point in the shaded area
above the intersection. (why is this the case)
After examining corruption, we shift our attention back to controlling and minimizing its
effect. Corruption (C) is defined as monopoly (M) plus discretion (D), minus
accountability (A). In mathematical terms, C = M + D – A. To decrease corruption, the
principal must do at least one out of three things: (1) decrease the possibility that a single
agent can exercise a monopoly over the client, (2) increase the agent’s accountability, or
(3) decrease the agent’s level of discretion
The principal should restructure the principal-agent-client relationship, in order to
decrease the agent’s ability to gain a monopoly over the client. "The principal may
induce competition among government agents. A client may be able to avoid extortion if
there are many government agents to whom he or she can turn to for service. In simple
models honest agents…eventually drive out dishonest ones." Similarly, the
principal can constantly change the agent’s clientele list. This prevents both the agent
and the client from becoming comfortable with each other and thwarts any bribery
attempts. (give a real life example)
The second approach increases the agent’s accountability to the principal for
being caught engaged in corrupt acts. The most obvious method of achieving this goal is
to making the punishment for being corrupt harsher. " ‘Infinitely large penalties’
are an optimal solution for certain principal-agent problems" and force the agent to
reexamine the pros and cons of being corrupt. Similarly, the principal should concentrate
more on curtailing corruption at the lower level politics. Regional agents are more
removed from the principal than national agents. Consequently, they are more
susceptible to corruption. Curtailing corruption at the local level places greater pressure
on higher level agents to discontinue corrupt practices, because there the higher level
agents have more to loose if the principal turns it effort toward reforming their practices.
The third approach involves decreasing the level of discretion associated with
corrupt act. The principal can achieve this goal by providing incentives for agents to
reports corrupt acts committed by other agents. Similarly, the principal can bring in an
independent auditing firm to monitor the interaction between agents and clients. An
example of this approach is the office of the special prosecutor to investigate allegations
against high level ag
Keywords:
corruption method government officials implore extract rents from businesses this paper
uses functionalist modernization theory corruption examine governmental corruption
primary argument that functionalist modernization approach most efficient method
controlling market approach argues that inevitable modern economy since cannot
eliminated market approach focuses minimize effect system before examining methods
limiting important examine principal agent client model principal agent client model
similar interaction between government politicians interest groups principle government
employs agent politicians turn interacts with client interest groups figure represents
interaction between three parties usually interest ahead principle consequently principle
always monitors actions exchanges information with turn exchanges information with
furthermore provides principal information some which concerns this relationship
referred iron triangle quote concerning iron triangle theory discuss more explain
importance this within model occurs when solicits monetary bribe figure illustrates that
option either accepting bribe rejecting decision influenced weighing payoffs associated
accepting bribe against payoffs associated rejecting game ends rejects however usually
accepts because gains nothing from rejecting figure illustrates game which occurs
between accepts concerned being caught ideally wants corrupt undetected learns concerns
shift from being caught severity punishment punishment relative small will concerned
punishment future ideal amount system occurs when cost equal cost removing illustrates
optimal amount where amount money spent eliminate equal money offers corrupt will
choose corrupt point shaded area below intersection however will choose point shaded
area above intersection case after examining shift attention back controlling minimizing
effect defined monopoly plus discretion minus accountability mathematical terms
decrease must least three things decrease possibility single exercise monopoly over
increase accountability decrease level discretion should restructure relationship order
ability gain monopoly over quot induce competition among agents able avoid extortion
there many agents whom turn service simple models honest agents eventually drive
dishonest ones quot similarly constantly change clientele list prevents both becoming
comfortable each other thwarts bribery attempts give real life example second increases
accountability being caught engaged acts most obvious method achieving goal making
harsher quot infinitely large penalties optimal solution certain problems force reexamine
pros cons similarly should concentrate more curtailing lower level politics regional more
removed than national consequently they susceptible curtailing local level places greater
pressure higher discontinue practices because there higher have loose turns effort toward
reforming their practices third involves decreasing discretion associated achieve goal
providing incentives reports acts committed other similarly bring independent auditing
firm monitor interaction clients example office special prosecutor investigate allegations
against high
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