On Controlling Crime with Corrupt Officials

SUGATA MARJIT AND HELING SHI
Indian Institute of Statistics
Calcutta
India
Department of Economics,
Monash University.
Australia

First version: April, 1995
Revised version: March, 1996

Abstract: This paper attempts to synthesize the recently developed strategic approach towards modeling corruption and the classical views. The following propositions are sought to be proved: a) If reward schemes are introduced, the classical and the strategic approaches yield similar results so far as controlling crime is concerned; b) With probability of detection being dependent on the effort of a corrupt official, crime can not be controlled; and c) In the context of an infinitely repeated game of crime, the corrupt law enforcing agent might choose less bribes and lower effort level than the myopic optimal and hence would strategically pamper crime.

JEL Classification: K42

Key Words: Crime and punishment, Reward schemes, Corrupt officials, Bribes and bargaining

Introduction
This paper attempts to synthesize the classical and the strategic views of crime and punish-ment. The classical view could be dated back to Becker (1968) which pioneered the literature on crime and punishment. Following Becker (1968), several authors have focused on the nature of criminal offenses and the means to eradicate crime [see for example, Rose-Ackerman (1975), Lui (1985, 1986), Cadot (1987)]. This literature has been surveyed by Becker in his Nobel lecture (Becker, 1993). Recently, Basu, Bhattacharya and Mishra (1992), hereafter B-B-M, question the assumption of honest law enforcing agents usually made in the traditional literature and raise the issue of the control of corruption when the person appre-hending a criminal can also accept a bribe and let the culprit go free. They argue that when the possibility of collusion between law enforcing agents and criminals is introduced, control of corruption becomes more difficult than is suggested by the Beckerian approach. They explicitly introduce a Nash-bargaining framework for the determination of an equilibrium bribe structure. They also demonstrate the hierarchical ¡°chain¡± of corruption and detection. We define this as the "strategic" view of the theory of crime and punishment. In the conclud-ing section of B-B-M (1992), they mention two possible extensions of their paper, namely, endogenizing the probability of detection, and introducing reward schemes. Several studies [for example, Chander and Wilde (1992), Besley and MaLaren (1993), Mookherjee and Png, (1995)] have investigated these issues in different contexts.

The purpose of this paper is threefold. First, we construct a model to illustrate that both Becker (1968) and B-B-M (1992) are special cases of a more general structure when reward schemes are introduced for the honest officials. Secondly, following existing literature but in a slightly different context, we argue that control of corruption is almost impossible if the law enforcing agents can manipulate the probability of detection through their efforts. In this case, the law enforcing agents will optimally select an effort level that pampers the criminal acts and seek bribes in their own interests; therefore, crime will certainly occur. Thirdly, we question the validity of the Nash bargaining scheme and introduce an alternative bargaining scheme between criminals and law enforcing agents. We construct several models with different timing to demonstrate that this alternative bargaining scheme gives law enforcing agents an additional freedom in negotiating with culprits and makes crime control even more difficult.

In this paper, we assume that both criminals and law enforcing agents are rational homo oeconomicus who are then modeled to maximize the expected monetary returns1.

The organization of the paper is as follows. The next section discusses three models with the first (2.1) to investigate the equivalence between two alternative approaches, the second (2.2) to extend the model by endogenizing the probability of detection, and the third (2.3) to investigate several games with an alternative bargaining scheme to emphasize the difficulty of controlling crime with corrupt officials. The last section concludes the paper.

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