Legalizing Bribes

Harassment bribes - payments people give in order not to be denied what they are legally entitled to - are common in for example India. Kaushik Basu recently made a 'radical' proposal to reduce its occurrence: Legalize the act of giving the bribe and double the fine for accepting the bribe! We develop a formal model and delineate circumstances under which Basu's proposal works well or poorly. We discuss a modified scheme where immunity is conditional on reporting that we argue addresses the main issues raised against the proposal. We highlight complementarities between these schemes and other policies aimed a improving the accountability and performance of the public sector, and of law enforcement agencies in particular. We conclude discussing the implications for the fight of more harmful forms of corruption