Gautam Bose

Bureaucratic delays and bribe-taking

Abstract Bureaucrats in LDCs are known to often elicit bribes by delaying the processing of documents (“applications”) submitted by private agents. This paper models this practice and discusses two procedures to control the consequent social welfare loss. We show that, compared to the situation with no sanctions on bribe-taking, imperfect vigilance coupled with penalties for bribe-taking leads to more frequent delays and a pareto-inferior solution. A superior governance mechanism involves a reward/penalty scheme based upon the average time taken to clear applications. An efficiency wage may have to be paid to implement this solution.

Intermediation in corruption markets

Purpose - Consider a government benefit that is earmarked for a group of people “deserving” the benefit. Corruption happens when undeserving candidates obtain the benefit with the help of corrupt officials. Often, such corrupt activities are mediated by professional touts who act as intermediaries between the undeserving candidates and the corrupt officials. The purpose of this paper is to analyze the equilibrium in such an intermediated market. Design/methodology/approach - A queuing model was theoretically analyzed where candidates wait in line to obtain the benefit. Undeserving candidates can also obtain the service – in exchange for a bribe – if they happen to wait at a counter with a corrupt clerk. The intermediary collects information to find out which clerks are corrupt, and charges a fee to direct candidates to an honest or corrupt clerk, as the candidate may choose. Findings - In a market with a single intermediary we show that, under fairly general conditions: the intermediary is active; both deserving and undeserving candidates use the service of the intermediary; welfare in an economy with an intermediary is lower than that in an economy without intermediaries; and under some conditions, an optimal response to corruption is to reduce the number of officials dispensing the benefit. Originality/value - This paper provides a framework within which intermediated markets for corruption can be analysed. The framework is easy to adapt and can accommodate social costs other than waiting costs. The conclusion suggests more complex scenarios that may be analysed using the approach in this model.

Interlinked contracts and moral hazard in investment

Abstract In agricultural tenancy arrangements, the tenant is often required to undertake effort aimed at maintaining and improving the productive stocks. This paper investigate the design of contracts which induce optimal investment of such effort. It is found that a long-term contract which interlinks tenancy with a credit agreement is optimal. In equilibrium the tenant obtains credit from the landlord at a rate of interest below the market, and is perpetually indebted to the landlord.

Aspects of Bureaucratic Corruption

This review attempts to identify treatments of corruption that draw upon characteristics of underdevelopment either as causes or as consequences. It focuses on three aspects of corruption in developing economies: red tape, rent-seeking, and the abundance of intermediaries. Red tape is presented as arising from differences in ability-to-pay and willingness-to-pay, which is a consequence of incomplete or absent markets in LDCs. Rent-seeking is viewed as a reason for inefficient allocation of resources. We emphasise that there is very little analysis of intermediation, but analysis is necessary to understand the structure of corruption markets.

Nutritional efficiency wages: a policy framework

Abstract This paper uses a dynamic model of nutritional efficiency wages to investigate the effect of policy changes on nutritional status. Employers ‘invest’ in the nutritional status of their long-term workers to improve productivity, and also to influence the probability of breakdown which ecessitates new hiring and investment. Thus, some workers obtain employment at wages exceeding their reservation level, and the remainder are self-employed. The nutritional status of self-employed workers is determined by per-capita resources in that sector. The nutritional status which an employer chooses for employed workers varies inversely with the nutritional status of the unemployed population. Nutritional supplements provided to unemployed workers leads to an increase in formal employment and a reduction in nutritional inequality (by the Lorenz criterion). An increase in export demand also has the same effect, as does migration of workers out of the economy.

Agrarian efficiency wages in a dual economy

Abstract Suppose that the long-term efficiency of agricultural workers is sensitive to current wages via consumption. Also assume that urban wages are higher, migration is costly, and agricultural workers do not have access to credit. Then changes in components of the urban wage structure effect components of the rural wage distribution in a selective and perverse fashion. Intuitively, a higher rural wage facilitates saving and thus makes it easier for workers to migrate to the urban sector. But this deprives the rural employer of long-term efficiency gains which motivates the higher wage payment. Thus when urban wages increase and migration becomes correspondingly more attractive, rural employers reduce their wage offers. This intuition is generalised by considering diverse worker types and various initial wage distributions.

A Theory of Monitoring and Internal Labor Markets

We analyze a firms job-assignment and worker-monitoring decisions when workers face occasional crises. Firms prefer to assign good workers to a difficult task and to not employ bad workers. Firms observe failures but only observe successfully resolved crises if they monitor the worker. If monitoring costs are positive but sufficiently small, for a range of probabilities that the worker is good, the firm assigns the worker to a low task (less sensitive to crises) and monitors her. At probabilities below this range and not too much above it, she is assigned to the low task and not monitored. At high probabilities of being good, she is assigned to the difficult task. We analyze the implications for internal labor markets of the case where a worker has the same ex ante probability of being good at all firms and learning is about ability at this particular firm.

A Dynamic Model of Search and Intermediation

This paper develops a dynamic model of an economy with search frictions in which homogeneous agents choose between specializing as producers or as merchants, and can change occupation at any time. Merchants operate alongside a decentralized search market and provide immediacy in trade in return for a price. Agents who know the location of a merchant have the option of paying the merchant’s price and avoiding search. We characterize equilibria in symmetric Markov strategies, and derive conditions under which merchants and their clients form a repeated relationship. We analyze welfare and explore conditions for the endogenous rise of an institution of intermediation.

Monitoring for Worker Quality

Much nonmanagerial work is routine, with all workers having similar output most of the time. However, failure to address occasional challenges can be very costly, and consequently easily detected, while challenges handled well pass unnoticed. We analyze job assignment and worker monitoring for such “guardian” jobs. If monitoring costs are positive but small, monitoring is nonmonotonic in the firm’s belief about the probability that a worker is good. The model explains several empirical regularities regarding nonmanagerial internal labor markets: low use of performance pay, seniority pay, rare demotions, wage ceilings within grade, and wage jumps at promotion.

Conforming to Group Norms: An Experimental Study

There is substantial experimental and empirical evidence to suggest that individual behaviour in bilateral or small-group interactions is affected by social norms. Further, social norms vary according to context. Previous research largely focuses on norms of fairness, not norms per se. We design an experiment to decouple norm-adherence from fairness. We find that (a) a group norm evolves and individuals cluster more tightly around it as they learn the average behaviour of the group, (b) actions further from this norm in a self-serving direction are less acceptable by others, and (c) when an agent is moved to a group with a different norm, s/he conforms quickly to the new norm.