Institutionalized Bribes: Entertainment Expenses and Public Procurement Auctions in Korea

We take the view that business entertainment of public officials is a form of bribery and examine the private benefits of paying bribes and its effects on allocative efficiency. We utilize two unique features of Korea s institutional settings: (i) recent adoption of anti-corruption regulation (Improper Solicitation and Antigraft Act of 2016) that limits the business entertainment of public officials, and (ii) mandatory participation of public entities in online procurement auctions which restricts the type of private benefits that bribe-paying firms can extract. We present empirical evidences consistent with the hypotheses that bribe-paying firms extract benefits by providing low-quality goods and services, and that bribes lower allocative efficiency.