Does competition among public offi cials reduce corruption? An experiment∗

Despite the abundance of theoretical and empirical studies on corruption, identifying successful anti-corruption strategies remains a challenge. This paper tests the effectiveness of an anti-corruption policy that is often discussed among practitioners: an increase in competition among offi cials providing the same good or service. In particular, we investigate whether overlapping jurisdictions reduce extortionary corruption, i.e., bribe demands for the provision of services that clients are entitled to receive. We overcome measurement and identification problems by addressing our research question in the laboratory. We conduct an extortionary bribery experiment where clients apply for a license from one of many available offi ces and offi cials can demand a bribe on top of the license fee. Offi cials decide whether or not to demand a bribe and the size of the bribe simultaneously at the beginning of the period, and clients engage in costly search. By manipulating the number of available offi ces and the size of search costs we are able to assess whether increasing competition reduces extortionary corruption. We find that increasing the number of providers lowers bribe demands only if it reduces search costs. If search costs are unaffected, increasing competition has either no effect (if search costs are high) or a positive effect (if search costs are low) on bribe demands. We compare our results to those obtained in a standard market setting with low search costs, where we find that increasing competition has no effect on pricing. Our data provides suggestive evidence that the different results obtained in the service delivery and in the standard market settings are due to different search strategies employed by consumers. JEL classification codes: D73, D49, C91