Business Intelligence

The Simple Economics Of Extortion: Evidence From Trucking In Aceh

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Executive Summary

This paper tests whether the behavior of corrupt officials is consistent with standard industrial organization theory. The authors designed a study in which surveyors accompanied Indonesian truck drivers on 304 trips, during which they observed over 6,000 illegal payments to police, soldiers, and weigh station attendants. Using plausibly exogenous changes in the number of checkpoints, they show that market structure affects the level of illegal payments. They further show that corrupt officials use complex pricing schemes, including third-degree price discrimination and a menu of two-part tariffs. The findings illustrate the importance of considering the market structure for bribes when designing anticorruption policy.

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