The Role of Reward and Punishment in Solving the Problem of Ex-post Corruption
The Conventional Lab Experiment in Economics
Keywords:
Economics of Corruption, Experimental Economics, Behavioral Game Theory, Extensive Game with Perfect InformationAbstract
This article aims to compare two government measures to solve the corruption problem, namely reward and punishment. It includes analysis of the results one would expect from theoretical reasoning in comparison with laboratory experimentation.
The analysis of an Extensive Game with Perfect Information model, with a Sub-game Perfect Nash Equilibrium found that rewards and punishments have hardly any effect in solving the problem of corruption. This is because strategies of paying and taking bribes are the best-response strategies for both players. Rational players are likely to coordinate for mutual gain so that corruption is a form of Cooperative Game. The effect of a measure that allows an offender to accuse an agent of taking a bribe is the same as having a witness. The game’s equilibrium changes from Cooperative to Non-cooperative Game (prisoner’s dilemma), so corruption disappears.
This experiment was conducted with five different rules variants. The first environment was without any measure; the second environment has only a rewards,; the third environment has only punishment; the fourth environment has both rewards and punishments; and the fifth environment has a rule enabling an offender to accuse an agent of taking a bribe.
The experimental results show that the proportion of players paying bribes compared to those paying fines was 87.50%, 81.25%, 87.50% and 87.50% respectively, and the proportion of players rejecting bribes compared with those accepting them was 56.25%, 56.25%, 68.75 % and 62.50% respectively. In case of a rule allowing for accusation, it was found that the proportion of offenders who do not pay bribes to agents and then accuse the agent was 18.75%, while the proportion of rejected bribes was 56.25%. Although the rule regarding accusation cannot prevent payments of bribes, it can increase the probability of a rejected bribe. The key result is that the incidence of successful corruption is only 37.50%.
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