Spread of Commercial Bribery and Private Sector Responsibilities in China

Liu Jiejiao 1 and Wang Dehua 2

1Institute of Industrial Economics, Chinese Academy of Social Sciences, Beijing
2 Graduate School of Chinese Academy of Social Sciences, Beijing

Abstract: After years of governance, the momentum of the spread of commercial bribery in China has yet to be effectively curbed. Commercial bribery has become a major form ofcorruption in China, but there are very few studies on this topic. This paper discusses commercial bribery in terms of economics on transactions between the supplier (the bribe-giver) and the demander(the bribe-taker), analyzing reasons for the spread of commercial briberyin China from an economic perspective. The authors find that China’s commercial bribery governance focuses on punishing the public sector and bribe-takers while it lacks sufficient governance measures on the private sector to address bribe-givers. This form of governance is dramatically different from that utilized in countries with mature market economies as well as some international organizations, which have different measures fortackling commercial bribery. Does governance have a causal effect on the spread of commercial bribery in China?The authors use penalty severity to indicate the private sector’srole and use a commercial bribery game under perfect rationality and evolutionary game theory models under bounded rationality to reveal the conditions and mechanism of the origin and spread of commercial bribery. The authors also analyze the role of the private sector (the potential bribe-giver) and the role of the punishment mechanism in commercial bribery governance. Results show that the penalties for bribe-giving are less severe than penaltiesfor bribe-taking. There is an especially clear asymmetric relationship between economic penalties for the bribe-giverand economic benefits gained from bribing, and the authors propose that this disparity is the institutional cause of the spread of commercial bribery in China. Froma local equilibrium and static perspective, asymmetric punishment is important for breaking down the alliance between the bribe-giver and the bribe-taker. But from the general equilibrium and dynamic perspective, asymmetric punishment raises the potential bribe-giver’s expected benefits, attracting the potential bribe-giver and encouraging the potential bribe-giver to extend the bribe offer. In this regard, asymmetric punishment is an institutional defect of China’s commercial bribery governance. Symmetric punishment mechanisms, with an emphasis on prevention and control, makes the bribe-giver and the bribe-taker subject to the same level of criminal punishmentandalso raises a bribe-giver’s financial penaltiesto a level higher than the expected benefits. This in turn has the power tolimit the bribe-giver’s bribery motivation and ability, leading the bribe-giver togive up bribery voluntarily through rational choice, and eventually curbing the spread of commercial bribery.

Keywords: commercial bribery, punishment mechanism, private sector, evolutionary game

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