Petty Corruption and Citizen Reports

Offering incentive schemes to low-ranking officials is difficult in corrupt environments. As is well known, there exists a tension between the dual goals of enforcing regulations and preventing corruption. Recent efforts to curb abuses have inspired interest in using new communication technologies to collect information directly from citizens. In our model, entrepreneurs must comply with regulations before undertaking a risky activity. Officials verify their compliance and may engage in corruption. The government tolerates corruption and weak enforcement when it does not communicate directly with entrepreneurs. We show that a simple self-reporting scheme in which entrepreneurs can report their own noncompliance to the government is optimal, and both deters corruption and improves regulatory enforcement.