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R
2
− c + K(u + z) +
δ
1 − δ
[K(u + z)]
which simplifies to (5).
Proposition 2. If (5) holds, a more integrated society (one with a
lower N) can sustain a lower level of corruption in equilibrium than
can a less integrated society.
Proof: Suppose that all members of all networks strategically link the briber‟s
dilemma and trade games using the strategy described in the proof
of Lemma 3.2. By Lemma 3.2, this can sustain non-bribery when
both clients are members of the same network. By Lemma 2.1, when
members of different networks play a briber‟s dilemma, bribery is in-
evitable. So, in equilibrium, bribery will occur only when the two
clients are members of different networks, which happens with proba-
bility
N−1
N
. Therefore no equilibria exist in which bribery occurs with
probability less than
N−1
N
, which is increasing in N.
To illustrate Proposition 2, suppose N = 1. Then we have a totally
integrated society, and as long as (5) holds, a universal “norm” against
bribery can ensure that bribery never occurs. If N = 3, then bribery
will occur in approximately
2
3
of the briber‟s dilemmas played, since the
probability that the two clients are members of the same network is
1
3
.
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4 Examples
Propositions 1 and 2 showed that informal social or economic inter-
action between a bureaucracy‟s clients can enable the clients to over-
come “briber‟s dilemmas”. This section briefly discusses two examples
of situations in which overcoming corruption poses a collective action
problem for the clients of a bureaucracy, which can be overcome if the
clients are socially or economically “integrated”.
First, consider a situation in which firms compete for contracts or
licenses allocated by government officials, or can bribe officials to over-
look regulations. A firm which refuses to bribe to obtain a contract, or
to obtain reliable telephone service, or to evade excise duty, risks being
priced out of the market by less scrupulous competitors. As a result,
these firms face a “briber‟s dilemma”. If some firms are willing to pay
bribes, the others have no choice but to follow suit.
However, suppose that the firms form an association which under-
takes mutually beneficial activities such as personnel training, technol-
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