The determinants of the contract of corruption: theory and evidence

This paper focuses on the determinants of the contract of corruption which typically sees the contraposition of a public official to a private agent. As in any contract, the allocation of bargaining power is relevant in determining agents' payoffs. However, in corruption how power is distributed between the parties can also modify the nature of the contract itself. The main idea is that the allocation of bargaining power between the bureaucrat and the private agent determines the emergence of two different types of contract. Active corruption (concussion) emerges when the bargaining power is in the hands of bureaucrat. Passive corruption (proper corruption) emerges instead when the bargaining power is in the hands of the private agent, typically a firm. In the case of active corruption, all corruption rent is extracted by the bureaucrat. In this case the level of the bribe is relatively high and the incentive of bureaucrats to being corrupt mainly depends on expected return from corruption. In the case of passive corruption, instead, the bargaining power is mainly in the hands of the firms. In this case, the bribe is relatively lower and the incentive to being corrupter depends on the number of firms which desire to bribe. The emergence of one contract rather than the other depends on factors such as the technological content of the public goods supplied, the level of debt of the public administration, the degree of competition in the market. This theory is put at a test by employing the Italian judicial data on concussione (active corruption) and corruzione (passive corruption). The empirical analysis entails two proxies for the bargaining power: the nature of the public good divided by sector and the level of local public debt. Controlling for all other relevant factors, we find that, as predicted by the theory, active corruption is more widespread in the presence of more bargaining power allocated to bureaucrats. The opposite occurs whenever more bargaining power is allocated to private agents.