This article presents a game theoretic institutional analysis of bureaucratic corruption: bribery in Chinese enterprise licensing. Formal structures and informal expectations are identified as features of "institutional design" that shape choices by strategic individuals to produce corrupt outcomes. Bribery (as an equilibrium) is deductively derived as a solution in a signaling game; the game form is empirically derived from features of institutional design. Exercises in comparative statics explore the robustness of bribery as an equilibrium when game parameter values are altered to reflect changes in institutional design. The exercises indicate that reducing corruption, in the sense of reducing bribe sizes, is relatively unproblematic. To move away entirely from corrupt equilibria, however, requires far more dramatic change in institutional design and may not be feasible through changes in formal structures alone.
Manion, M. (1994). Corruption by design: Bribery in Chinese enterprise licensing (CAPS Working Paper Series No.13). Retrieved from Lingnan University website: http://commons.ln.edu.hk/capswp/80