Abstract
This paper investigates the phenomenon of judicial corruption and incorporates it into Polinsky, A. M. (1980). Strict liability vs. negligence in a market setting. American Economic Review, 70, 363–367 framework so as to analyze the efficiency of the negligence rule. By shedding light on the role of social norms in regard to the phenomenon of judicial corruption, this analysis provides implications for policy. First, more prevalent corruption at the status quo tends to intensify the extent of the corruption itself and, as a result, the effectiveness of the government’s corruption enforcement is greatly lessened. This implies that an excessively lenient policy of corruption may result in an uncontrollable consequence; once corruption becomes rampant, it is costly to bring it down. Of great importance, in the presence of such a corruption effect, the social optimum cannot be achieved based on the negligence rule and the equivalence between the strict liability and negligence rule fails. Secondly, the attitude of the society toward a corrupt judge plays a crucial role in governing the effectiveness of an efficient wage arrangement. If the society can fully accept a corrupt judge, corruption will never be controlled even with the incentive wage scheme.
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Notes
We specify θ > 1 in order to have an increasing psychological cost.
We assume that μ is public information due to sufficient social interactions among the judges. It is consistent with a study by Geanakoplos et al. (1989) in which a psychological equilibrium requires not only the Nash equilibrium property, but also the correct expectations of all players in equilibrium.
According to Posner (1983), the psychological cost arising from delinquent activity includes two parts: one is the guilt cost which is incurred even if the delinquency is not deterred, and the other is the shame of getting caught. As is evident, this model takes the guilt cost into account and ignores the possible shame effect. However, my main results are not altered even if the latter effect is considered as well.
The second-order condition \( \frac{{d^{2} X}} {{dZ^{2} }} = D + \frac{{\partial Y}} {{\partial Z}} > 0 \) is assumed to be satisfied.
Lambsdorff (2002) discusses various corruption agreements by shedding light on the transaction costs, including the costs of determining contract conditions and enforcing contract terms.
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We are grateful to the anonymous referee for helpful comments and suggestions. Any remaining shortcomings are our own responsibility.
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Chang, Jj., Liu, Cy. The Negligence Rule in the Presence of Judicial Corruption and Social Norms. Atl Econ J 35, 203–215 (2007). https://doi.org/10.1007/s11293-007-9068-8
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DOI: https://doi.org/10.1007/s11293-007-9068-8