Comments on “Bribes for Sale”

1. Comments on “Bribes for Sale” Siddharth Sharma March 2011

2. An innovation in the measurement of corruption • Based on transactions data provided by bribing firm • In contrast, previous research based largely on surveys • If the authors had relied on a survey of bribing firms (sellers): • Surveyed a representative sample of sellers • (At best) Asked “How many sales to public/private/foreign firms involved a bribes” • Recall bias • Underreporting (+ underreporting might vary across public and private buyers) • Precise amounts of bribes and other transactions level detail? • In practice, most corruption surveys do not ask such direct questions

3. Bribes are common • High incidence of bribes in sales of machinery (30-50% of transactions, depending on the buyer type) • What does this imply for efficiency? • Corruption in procurement ends up distorting the price of the input (machinery) • How does this depend on the nature of the informational asymmetry? • Do firms end up underinvesting in machinery, or buying poor quality machinery? • Unknown: cost or quality of machinery?

4. Efficiency Implications • Does corruption lead to inefficiencies in the import of machinery? • Are the ‘wrong’ firms importing? • Are importers less likely to focus their efforts on finding the best quality? • Could the incentive to maximize bribes increase the efficiency of procurement officers? • These implications might depend on the extent of quality variation within products, and on cost variation across importers • A model would be useful • Supporting evidence for assertion that competition leads to similar price and quality levels among sellers?

5. Bribes and Firm Ownership • Sales to government firms have the highest incidence of bribes • Sales to foreign firms more likely to feature bribes than those to domestic firms • Seller’s profits higher in sales with bribes when sales are to private firms (collusion) • Are these figures representative? • Unsuccessful sales negotiations are not observed • “Was a bribe demanded?” • Outcome of sales negotiations correlated with demand for bribes? • Might not be an issue if the sellers are similar and compete among themselves • Model will help to clarify the intuition

6. Interpreting Ownership Effect • Corporate governance: Providing incentives to induce profit maximizing behavior • Interestingly, firm size does not seem to matter. • Other possibilities to consider: • Low wages in government • Summary statistics, regressions and foreign firms results do not support this low wage hypothesis • Employee Selection (More ‘dishonest’ procurement officers in government firms?) • How much of the ownership effect is due to selection and how much due to ownership? • Government firms worse at getting rid of dishonest employees? • Is there any within-firm variation in bribes? • Selection at the firm level: Poorly run private firms less likely to survive • Foreign firms result suggests that localized knowledge also matters • Information asymmetries might vary across products or industries