Question

Consider a corrupt provincial government in which each housing inspector examines two newly built structures each week. All the builders in the province are unethical and want to increase their profits by using substandard construction materials, but they can't do that unless they can bribe a housing inspector into approving a substandard building. \(L O 5.2\) a. If bribes cost $$\$ 1,000$$ each, how much will a housing inspector make each year in bribes? (Assume that each inspector works 52 weeks a year and gets bribed for every house he inspects.) b. There is a provincial construction supervisor who gets to hire all of the housing inspectors. He himself is corrupt and expects his housing inspectors to share their bribes with him. Suppose that 20 inspectors work for him and that each passes along half the bribes collected from builders. How much will the construction supervisor collect each year? c. Corrupt officials may have an incentive to reduce the provision of government services to help line their own pockets. Suppose that the provincial construction supervisor decides to cut the total number of housing inspectors from 20 to 10 in order to decrease the supply of new housing permits. This decrease in the supply of permits raises the equilibrium bribe from $$\$ 1,000$$ to $$\$ 2,500$$. How much per year will the construction supervisor now receive if he is still getting half of all the bribes collected by the 10 inspectors? How much more is the construction supervisor getting now than when he had 20 inspectors working in part \(b\) ? Will he personally be happy with the reduction in government services? d. What if reducing the number of inspectors from 20 to 10 only increased the equilibrium bribe from $$\$ 1,000$$ to $$\$ 1,500 ?$$ In this case, how much per year would the construction supervisor collect from his 10 inspectors? How much less is the construction supervisor getting than when he had 20 inspectors working in part \(b\) ? In this case, will the construction supervisor be happy with the reduction in government services? Will he want to go back to using 20 inspectors?

Short answer

The supervisor gains more with 10 inspectors at $2500 bribe but loses with $1500 bribe. Happiness depends on bribe value.

Step-by-step solution

Calculate Annual Bribes for One Inspector

Each inspector inspects 2 houses a week, so in 52 weeks, they inspect \(2 \times 52 = 104\) houses a year. Since each bribe costs \\(1,000, the total annual bribes for one inspector are \(104 \times 1,000 = \\)104,000\).

Calculate Supervisor's Share with 20 Inspectors

The total yearly bribes collected by 20 inspectors is \(104,000 \times 20 = \\(2,080,000\). Since the supervisor takes half, he receives \(2,080,000 / 2 = \\)1,040,000\) annually.

Calculate New Supervisor's Income with 10 Inspectors (Bribe Increase to $2500)

With 10 inspectors working at \\(2,500 per bribe, each inspector makes \(104 \times 2,500 = \\)260,000\). The total collected by 10 inspectors is \(260,000 \times 10 = \\(2,600,000\). The supervisor receives half: \(2,600,000 / 2 = \\)1,300,000\).

Compare and Analyze Supervisor's Income Changes (Reduction to 10 Inspectors)

Initially, with 20 inspectors, the supervisor made \\(1,040,000. Now, with 10 inspectors, he makes \\)1,300,000. The difference is \\(1,300,000 - 1,040,000 = \\)260,000. The supervisor benefits more from the reduction.

Calculate Supervisor's Income with 10 Inspectors (Bribe Increase to $1500)

With the bribe at \\(1,500, each of 10 inspectors earns \(104 \times 1,500 = \\)156,000\), totaling \(156,000 \times 10 = \\(1,560,000\). The supervisor's share is \(1,560,000 / 2 = \\)780,000\).

Comparison of Income with Reduced Inspectors (Bribe Only to $1500)

Originally making \\(1,040,000, the supervisor now earns \\)780,000 with 10 inspectors, a decrease of \\(1,040,000 - 780,000 = \\)260,000. The supervisor would prefer returning to 20 inspectors.

Key concepts

Corruption

Corruption is the misuse of power by public officials for personal gain. In the context of microeconomics, corruption can significantly impact resource allocation and the efficiency of service distribution. For example, when government officials engage in corrupt practices like demanding bribes for approving construction projects, it distorts market operations. Builders are forced to factor in these additional costs, which usually leads to more expensive housing for consumers.

• Corruption often results in decreased public trust in government bodies.
• It can lead to an inefficient allocation of resources.
• Increased costs due to bribes can discourage honest entrepreneurs from entering the market.

Corruption not only affects economic factors but also deteriorates social welfare by reducing the quality and quantity of government services available to the public.

Bribery in Government

Bribery is a common form of corruption whereby public officials accept or demand payments to perform their duties favoring specific parties. When discussing bribery in government, it's important to understand how it undermines ethical standards and leads to unfair advantages. For instance, if housing inspectors in a province accept bribes to approve substandard construction, it raises severe safety and legal concerns for homeowners and society at large.

• Bribery fosters unfair competition by favoring those willing to pay over those following rules.
• It can lead to substandard services and goods being approved and made available in the market.
• Government reputation and legitimacy suffer as a result of such practices.

Combatting bribery typically requires strengthened regulatory oversight, transparency in operations, and effective legal frameworks to discourage such behavior.

Government Services

Government services are essential functions provided by the state to support a nation's economy and improve the quality of life for its citizens. These services include critical infrastructure like housing, education, and public safety. When corruption or bribery infiltrates these systems, as in the example of housing inspectors taking bribes, their quality can substantially diminish.

• Corruption can lead to reduced access and increased costs for government services.
• Substandard services may endanger public safety, as seen in diluted construction standards due to bribery.
• Citizens may receive fewer services at lower quality, impacting overall societal welfare.

Ensuring accessible, efficient, and equitable government services requires vigilance against corruption and a dedication to serving the public's best interests.

Economic Incentives

Economic incentives are strategies used to motivate individuals or businesses to act in specific ways by altering their potential costs or benefits. In a situation dominated by corruption, like the housing upsurge driven by bribes, incentives play a critical role. Officials might reduce the workforce to increase bribes from necessary services, thus affecting the available supply.

• Incentives for corruption might include personal gain, power, or advantageous business relations.
• To counteract corruption-driven incentives, governments might implement policies that reward integrity and punish wrongdoing effectively.
• Corruption can also alter market behaviors, causing distortions such as artificially increased pricing to account for bribe costs.

Effective economic incentive structures can guide behavior positively and curtail corruption, ensuring a more honest and productive operating environment.