Question

Consider a corrupt provincial government in which each housing inspector examines two newly built structures each week. All the builders in the province are unethical and want to increase their profits by using substandard construction materials, but they canât do that unless they can bribe a housing inspector into approving a substandard construction materials, but they canât do that unless they can bride a housing inspector into approving a substandard building. a) If bribes cost $1,000 each, how much will a housing inspector make each year in bribes? b) There is a provincial construction supervisor who gets to hire all of the housing inspectors. c) Corrupt officials may have an incentive to reduce the provision of government services to help line their own pockets.d) What if reducing the number of inspectors from 20 to 10 only increased the equilibrium bribe from $1,000 to $1,500?

Answer 1

a) If bribes cost $1,000 each, how much will a housing inspector make each year in bribes?

So, if the corrupt inspector approves two newly built structures each week, ti means that he is bribed twice per week. There are 52 weeks in a year, so he gets a total of 104 bribes (52 x 2). If each bribe costs $1,000, then he makes a total of: $1,000 x 104 = $104,000 in bribes per year.

c) Corrupt officials may have an incentive to reduce the provision of government services to help line their own pockets.

This statement is true. Corrupt officials will want to have private companies they can obtain bribes from provide government services. It increases the probability of them making money from bribes.

d) What if reducing the number of inspectors from 20 to 10 only increased the equilibrium bribe from $1,000 to $1,500?

Reducing the number of inspectors in hafl means that each inspector now gets twice the bribes. Because the equilibrium price did not double as did the quantity of bribes, each inspector will make less money than expected, but they will still the incentive to collect all the four bribes per week.