The Simple Economics of Extortion: Evidence from Trucking in Aceh / Benjamin A. Olken, Patrick Barron.

Format:

Book

Author/Creator:

Olken, Benjamin A.

Contributor:

National Bureau of Economic Research.

Barron, Patrick.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13145.

NBER working paper series no. w13145

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Simple Economics of Extortion

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

This paper tests whether the behavior of corrupt officials is consistent with standard industrial organization theory. We designed a study in which surveyors accompanied truck drivers on 304 trips along their regular routes in two Indonesian provinces, during which we directly observed over 6,000 illegal payments to traffic police, military officers, and attendants at weigh stations. Using plausibly exogenous changes in the number of police and military checkpoints, we show that market structure affects the level of illegal payments, finding evidence consistent with double-marginalization and hold-up along a chain of vertical monopolies. Furthermore, we document that the illegal nature of these payments does not prevent corrupt officials from extracting additional revenue using complex pricing schemes, including third-degree price discrimination and a menu of two-part tariffs. Our findings illustrate the importance of considering the market structure for bribes when designing anti-corruption policy.

Notes:

Print version record

June 2007.