Petty Corruption and Citizen Reports

This paper argues that self-reporting schemes whereby citizens report their noncompliance with regulation can prevent corruption in administrations. In our model, entrepreneurs must comply with regulation before undertaking a risky activity. Officials verify compliance before granting permits, and may engage in either bribery or extortion. Without a self-reporting scheme, the government tolerates bribery in order to deter extortion. In the presence of a self-reporting scheme, the government is able to deter both bribery and extortion by rewarding the officials whose associated entrepreneurs self-report. In an extension, we incorporate intermediaries, and show their presence makes the self-reporting scheme more valuable