Prevent Corruption

8/7/2019 Prevent Corruption

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Prevent Corruption:Raising payment or

punishment?

Han Wangfrom MoF 2010

26,04,2011

Business and Corporate Ethics


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Structure

1) Model Building

2) Analysis

3) Suggestion

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Parking lot model

Background

Small, backward parking lot managed by a lady

No IT facility, fees are collected by the lady The ladys income based on the refunding of the parking fee from the

government, regarding to the numbers of bills(with serial numbers) signed

Tax is not considered

3

Chance of corruption

By making a discount on parking fees while not giving out

bills to the customers, the discounted fees will become the ladys

income.


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Parking lot model

Detail the factors/Assumptions

1. Origin price:10RMB/hour

2. Hours per week:1000 hours

3. Discounted price:8RMB/hour

4. The ladys preference to accept a bribery:30%

5. The probability that the bribery is discovered and get a

punishment:30%

6. The punishment:repay the illegal income and a additional

100RMB

7. The cost of an investigation:70RMB

8. Refunding rate:10%4


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Parking lot model

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Role Normal Bribery(70%) Punished(30%)

Lady 10x100x10%=1008x100x30%+10x100x70%x10%

=310

310-8x100x30%-

100=-30

Government 10x100x90%=900 10x100x70%x90%=630

10x100x70%x90%+8

x100x30%+100-

70=900

Customer -1000 -940 -940

The expected earning of the lady with bribery is:

310x70%+(-30)x30%=208

The expected earning of the government with bribery is:

630x70%+900x30%=711


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AnalysisGeneralization of the model

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When will the lady refuse to accept bribes?

If the expected income with bribery is less than normal income

Detail the factors/Assumptions

1. Origin price:p

2. Hours per week:N

3. Discounted rate:b

4. The ladys preference to accept a bribery:m

5. The probability that the bribery is discovered and get a

punishment:n

6. The additional punishment:F

7. The cost of an investigation:A

8. Refunding rate:r


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AnalysisGeneralization of the model

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The expected earning of the lady with bribery will be:

E=(1-n)(N(1-m)pr+Nmpb)+n(N(1-m)pr-F) = Np(1-m)r+Npm(1-n)b-nF

The expected earning of the government with bribery is:

(1-n)N(1-m)p(1-r)+n(N(1-m)p(1-r)+Nmpb+F-A)


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AnalysisExpected earning with refunding rate

8

0

100

200

300

400

500

600

700

800

900

0 0.2 0.4 0.6 0.8 1

F=100

F=300

F=500

Increasing

Delta=700


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AnalysisExpected earning with refunding rate (improved)

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Considering the increasing

legal income will less the

desire of accepting bribes

and increasing the normal

income, assuming that

m=m*(1-r), the result turns

out to be decreasing with

starting slope around -300.

-400

-200

0

200

400

600

800

1000

0 0.2 0.4 0.6 0.8 1

F=100

F=300

F=500

normal income


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AnalysisExpected earning with additional punishment

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Decreasing

Delta=-0.3

-100

0

100

200

300

400

500

600

0 200 400 600 800 1000

r=0.1

r=0.3

r=0.5


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AnalysisMixed

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The slope of the black line

shows the mixed effect of

punishment and refunding

rate on decrease the

expected earning.

Delta(black)=-0.00043

0

500

1000

1500

2000

2500

0 0.2 0.4 0.6 0.8 1

E=100

E=150

E=200


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Suggestions

1) Raising the income will lead to a faster break point, while raising

punishment will decrease it obviously but break out later.

2) The mixed method is less effective.

3) The model puts no constraint for customers to offer

bribes, which means they will always choose to offer for more

utilities for their own.

4) The governments best choice is always operatinginspection, unless the cost of this act is too high.

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Thank you for your attention!

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Han Wangfrom MoF 2010

26,04,2011

Business and Corporate Ethics

Prevent Corruption

Documents

Transcript of Prevent Corruption