Why corruption is such a tough issue to deal with? – Taking Game Theory Perspective

Corruption is one of the most difficult problems to deal with, for majority of the developing countries. Many non-profit organizations are trying sincerely to bring awareness among citizens of these countries about the magnitude of the problem and possible solutions, but nothing seems to be actually working.

Having seen this problem of corruption first hand, I always wonder why it turned out to be such a hard thing to crack! In fact, this issue has so many faces to it - social, economic, cultural, political etc., But let me highlight one aspect that stands out from the perspective of our subject of interest - Game Theory!

To better demonstrate my point, let me take an example of a person "A" who wants to start a new business in one of these countries, where corruption is prevalent. Now, "A" has all the credentials & financials to make his/her case successfully. However, in this corrupted country, things won't work unless you bribe the government authorities, no matter how good your credentials are!

That leaves "A" with 2 options:

- Don't Bribe & Try to win the license only with his/her own credentials?

- Bribe the authorities (like rest of the competitors) and start your business!!

Payoff table looks something like this for this case – Assume the value of the project at stake is worth $100. Both players A & B are having equal chances of winning the project with NO CORRUPTION in picture. So, the value for both no-bribes is $50 each. If both payers pay a bribe of $10 each, they are left with a 40-40 (in bribe-bribe scenario). However, in the case of only one player paying the bribe, the probability of winning increases by 4 folds & hence the winner has a payoff of $70 ($80 – bribe of $10) and the other player has a payout of just $20.

Expected Profit		Player B
		Bribe	No Bribe
Player A	Bribe	40,40	70,20
	No Bribe	20,70	50,50

From the above table, it is a classic prisoner’s dilemma! Both the payers (A & Competitors) have dominant strategy – “Bribe”. Player “A” & the player “B” (Competitors) can actually coordinate and decide not to pay the bribe, there by improve their expected profits. But both the players have mutual doubts on other’s intention to defect.

This dilemma, I think, is one of the significant influencers that encourage people with otherwise honest (Anti-bribers) intentions to pay the bribes to get things done.

Does "Game Theory" offer a solution to eradicate corruption? Answer is NO & Yes. No, it does not offer any solution to this problem in specific. Yes, it does suggest way to get players out of this dilemma.

Alter the payoff structure so that “defection” is strictly punished with higher penalties and thereby, encourage players to cooperate! Say, there is a penalty of -40 enforced in case of defection & that changes the table as below –

Expected Profit		Player B
		Bribe	No Bribe
Player A	Bribe	40,40	30,20
	No Bribe	20,30	50,50

This takes out “defection” as an option for both the players & hence encourages the rational players to go for a Bribe-Bribe or NoBribe-NoBribe! Since No-bribe offers higher payoff, if the players are rational, they end up with a no-bribe choice.

(NOTE: There are multiple ways to make sure this kind of ENFORCEMENT mechanism can be introduced into the system, but leaving that part out here).