Tuesday, March 2, 2010

Corruption at checkpoints

Benjamin Olken and Patrick Barron examined the bribe payments made by truck drivers at military and police checkpoints and weigh bridges in two Indonesian provinces and unearth some interesting parallels between the behaviours of the corrupt officials and the standard industrial organization theory. They find an average of 20 illegal payments per trip, totalling about 13% of the cost of each trip.

They find that the illegal nature of these payments does not prevent corrupt officials from extracting additional revenue using complex pricing schemes, including third-degree price discrimination (at checkpoints) and a menu of two-part tariffs (at weigh bridges).

Evidence of price discrimination comes in the form of differential bribes charged on truckers based on observable characteristics like the age of the vehicle and type of cargo carried, both of which may indicate greater willingness-to-pay. Bribes paid per checkpoint increases as the trip nears its destination, consistent with ex-post hold-up along a chain of monopolies.

They find that after the military withdrew from the Aceh province in the aftermath of a peace agreement with local rebels, forcing the closure of the military checkpoints, the bribes at the remaining police checkpoints went up to capture the "peace dividend". This also indicates that decentralization may not necessarily lower corruption since the local market forces calibrate themselves, by marking prices upwards accordingly.

Regulatory solutions to addressing checkpoint collection will invariably fail. So any efficient policy that addresses checkpoint corruption should involve either some or all of these below

1. Minimizing the number of checkpoints.
2. Regulatory checks like weighment should be done at only one place, preferably at the entrance and done on computerized weighbridges genreating computer weighment recipt. Ideally, weighment checks should be dispensed off.
3. Automating toll collection so as to make the toll amount salient and the process transparent.
4. Outsourcing toll collection after fixing up toll rates

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