Buying and selling a product or service involves a number of costs, including time spent searching for the best prices, negotiating for good discounts, researching product quality and writing contracts where applicable. Broadly, these are called the transaction costs of economic exchange, and part of the reason firms exist is to keep transaction costs at a minimum.
Recently, I came across an interesting paper by Fisman and Gatti which suggests that bribery also involves a transaction costs—it takes time to negotiate a bribe rate and the terms of the favor to be done, e.g. the number of regulations to be avoided. The interesting point here is that if a transaction cost is indeed present, then the greater the number of regulations a firm would like to avoid, the more time negotiations require. Further, we can expect the bribe amount to increase too with the number of regulations the firm wants to avoid. Now putting these results together gives us a couple of testable hypotheses:
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