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Most studies on corruption have focused on corrupt officials but not on the bribing firms, and tended to be static. We propose a dynamic model to explain the bribery behavior of firms considering three factors: the macro regulatory environment, firm behavior, and the inter-firm competition in bribing. We show that, first, if the level of corruption in a society is significantly greater than zero, regardless of how clean (anti-bribing) a firm is, the environment will force the firm to bribe. Second, if the combined self-restraint from bribing by all firms is greater than the combined motivation to bribe by all firms, then the level of corruption is manageable; otherwise, the level of corruption escalates rapidly. Third, a firm's effort in bribing or anti-bribing may have a multiplicative effect and can significantly change the bribing momentum in a society.
1. Introduction
1.1 Bribery: The Tragedy of the Commons
Firms with well-defined property rights in a free market have no incentives to bribe government officials. However, if the government uses monopoly power to interfere with and restrict the market, then firms may be forced to bribe government officials. Firms face the "prisoner's dilemma" in the sense that if all firms refuse to bribe, they will all be better off. However, every firm realizes that others will cheat and must therefore bribe to remain competitive and are collectively worse off as a result [see, e.g., (Shleifer & Vishny, 1994); (Rose-Ackerman, 1997)]. Hardin, in his seminal 1968 essay, calls it the "tragedy of the commons" (Hardin, 1968).
Fortunately, in reality, we observed that the tragedy of the commons does not occur everywhere. In some societies, firms paying bribes to the government are very rare (e.g., the Scandinavian countries). While social scientists, including business scholars, have accumulated a rich literature on the study of corruption [see (Jain, 2001 ) and (Svensson, 2005) for detailed reviews], as demonstrated in the following review, some gaps exist and need to be filled. This research introduces a firm-bribing model that demonstrates the dynamics of firm bribing, and discusses the conditions under which bribery may increase or may be eradicated.
1.2 Gaps in the theoretical models
Efforts in modeling corruption can be divided into two major groups (Jain, 2001). The first group uses...