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Which entrepreneurs bribe and what do they get from it?

Dr. Gjalt de Jong
Dr. Gjalt de Jong

Bribery is key for entrepreneurs who operate in a business environment with insufficient formal institutions, and that is dominated by a dual market structure and powerful government officials. ‘Bribes enable entrepreneurs to use government resources, avoid red tape and thus foster revenues’, says dr. Gjalt de Jong. ‘We suggest, however, that bribes are subject to diminishing returns because high levels of bribes increasingly absorb the returns on entrepreneurial activities, and distort entrepreneurial spirit and behavior.’

De Jong is first author of the paper Which entrepreneurs bribe and what do they get from it? Exploratory evidence from Vietnam, which is the next FEB Publication of the Month. The article is scheduled to appear in Entrepreneurship Theory and Practice in March 2012.

Diminishing returns

‘The crucial argument in our research is that, at a certain point in time, bribing entrepreneurs start paying more black money than necessary from a business point of view. This negative return really stands out in our research’, according to De Jong, who together with Tu Phan and Prof Hans van Ees analysed the answers of 606 Vietnamese entrepreneurs. ‘The diminishing returns are, for example, the result of an entrepreneur who finds himself in a vicious circle after the first step in bribery. Initially, he profits, but he is also known by the civil servant concerned, who could visit the entrepreneur more and more often and eventually squeeze him out completely.’

Ethical discussion

De Jong and his colleagues are aware of the possible negative effects of bribery on a macro level. ‘However, we leave the ethical discussion out of the picture. We only examined the relation between bribery and business performance, and approached bribery purely as an entrepreneur’s strategic instrument. In that case, one can say: an entrepreneur pays an amount to the government and profits from it by realizing an increased output. We are talking about a form of bribery that is common in Vietnam on a day-to-day basis: relatively small amounts are given to government officials for a certain favour.’

Well-educated entrepreneurs more likely to bribe

Not every Vietnamese entrepreneur uses bribery. De Jong c.s. also investigated which entrepreneurs are more inclined to bribe and which factors determine this. ‘One of our conlusions is that entrepreneurs who are very well-educated are more inclined to bribe than entrepreneurs who are not. This is contradictory to our intuition since a well-educated entrepreneur might be expected to be more aware of the ethical side of business. On the other hand, bribery is a very complex game. An entrepreneur must give the right amount to the right person at the right time. That means that someone with a higher level of education understands better when the strategic tool ‘bribery’ is profitable.’

More information

Which entrepreneurs bribe and what do they get from it? Exploratory evidence from Vietnam

Scheduled to appear: Entrepreneurship Theory and Practice, vol. 36, no. 2 (March 2012).

Dr. Gjalt de Jong, Tu Phan and prof.dr. Hans van Ees

Contact: Gjalt de Jong

Last modified:06 February 2014 10.07 a.m.