September 29 th
Varieties and Causes of Corruption
•Principals and Agents
•Principals need agents
oagent works on the behalf of the principal
oDelegation is indispensable when principal has other tasks they need to
When completing a task oneself is unrewarding
When special expertise is required and/or
When enforcement is necessary
•Dash (Thompson and Thompson)
oFour Varieties of corruption
o1st Dash: Aprincipal agent problem (are the others?)
oGovernment official is not working in the interest of the agent
•Bribes or tips?
oAre these bribes any different than “tips” like at a restaurant?
oDo bribes reward good service, solving principal agent problem since bribes ty
compensation to customer/client satisfaction
oWaiter and Waitress example (they need to be good servicemen, they need to
act on your behalf, not make you wait, come back and see your status, etc)
oPolice officer directing traffic
oKeeping the customers happy
oHappens in the corrupt societies, helps solve the principal problem (our
bureaucrats and police men don’t get paid much, if we tip them it’s a good
thing, they’ll do their job better)
oGiving a present to the mailman is legal, considering he is going to still
deliver your mail even if you don’t give him a gift.
oIf the worker does not provide the same service to people who don’t tip him,
then it’s no longer a tip.
•The bottom line from the Chris and Pat game is that in the society, both characters
have an incentive to cooperate with each other.
•The agent says “yes, whatever you want, I will work with you even if it is not working
•To maximize payoffs, there are incentives to do things like, have cell phones. Having
ways to make things easy, efficient. Do what they need to do facilitate that
•What if there were incentives to DIY
oAdam Smith is wrong
oDo what’s best for yourself, and for the group
oThe clip from “A Beautiful Mind” makes this make sense.
oNot all members of the group are always going to be inclined to cooperate.
The only way to get what they want is to go for their second choice, and look
out for the interest of the group
oIf you pursue your own self interest, society is worse off. If you look for the
interest of the group, then society thrives.
oRat out your buddy to avoid hard time? Serves your best interest.
oIf you both rat each other out, you both get punished anyway