Petty Corruption and Citizen Reports

To enforce regulations, governments often delegate power to public officials. However, officials may have incentives to abuse their discretionary power and engage in bribery or extortion. Efforts to monitor and curb such abuses have inspired interest in using new communication technologies to gather information directly from citizens. In our model, entrepreneurs must comply with regulations before undertaking an activity. Officials verify their compliance and may engage in corruption. In line with existing work, the government tolerates corruption and weak enforcement when it does not communicate with entrepreneurs. However, we show that a simple incentive scheme in which entrepreneurs can report noncompliance both deters corruption and improves regulatory enforcement. In an extension, we incorporate intermediaries and show their presence makes the scheme more valuable.