From a NYT Q&A about a trip to Bangladesh:

WASSIM RAGAB: How do you overcome the corruption in Bangladesh and still run successful projects?

MELINDA: It’s unfortunate and true that Bangladesh is perceived to be one of the world’s most corrupt countries. The Bangladeshis I have met have told me that they feel this in small ways on a fairly regular basis. Because the problem is systemic, it’s hard for them to go against the tide. One doctor I met with yesterday told me that nobody pays attention to traffic lights since you can buy your way out of a ticket for a small fee and because if you don’t run the red light, “everyone else will and you’ll never get to your destination.” Obviously, these unnecessary surcharges on everyday life and other forms of corruption are a major impediment to faster economic growth and it’s something the government and others must address.

Because everyone else is running a red light, a best response is to run it yourself. For some people, a best response to everyone not running the red light is to not run it yourself.  This is a coördination game logic. Actions are strategic complements: I am more willing to run the red light if you are running it.

Corruption can be thought of in two ways.  First, it is a sunspot that makes the running lights equilibrium focal.  Second, there are heterogeneous costs (or benefits) to running a red light.  Suppose there is no corruption.  Then, there is a threshold equilibrium where people run the red light if and only if their cost is below the threshold.  Corruption lowers the costs of running the right and shifts the threshold up: More people run red lights.  By strategic complements this creates a spiral where yet more people run red lights etc.

 

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