View: Why aspects of game theory must be applied in our policymaking


Much has been written and discussed about corruption having a negative impact on economic growth, with malfunctioning government institutions affecting investments, entrepreneurship and innovation. In this context, GoI has been following a zero-tolerance approach to corruption.

The 2020 TRACE Bribery Risk Matrix places India 77th in a list of 194 countries measuring business bribery risks. Over the years, India’s position has improved significantly. In 2014, it was ranked 185th, with an overall score of 80, out of 197 countries. In 2020, this has improved by 108 notches to 77.

In 2018, GoI amended the Prevention of Corruption Act, 1988, to introduce new provisions, including criminalising the act of giving a bribe in addition to taking it, at the same time putting in place an effective deterrence for such actions by individuals as well as by corporate entities. External complaints that have come to the Central Vigilance Commission (CVC) from 2014 to 2019 have declined by 48%. This shows the public having more faith in a ‘cleaner’ administration.

The number of cases where action had been taken after CVC had conducted its own investigations is also declining. This shows leveraging of technology and adoption of initiatives like e-tendering, eprocurement and reverse auction have helped to bring about more transparency in governance. This should be continued with gusto. Does such reduction in corruption have an impact on economic growth? According to a 2013 OECD issues paper on corruption and economic growth, ‘…while the direct link between corruption and GDP growth is difficult to assess, corruption does have significant negative effects on a host of key transmission channels, such as investment (including FDI), competition, entrepreneurship, government efficiency, including with regards to government expenditures and revenues, and human capital formation’.

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A March 2021

Ecowrap analysis between 2012 and 2018 shows that countries like India, Britain, Egypt, Greece and Italy that succeeded in reducing corruption levels by improving their overall rank in Transparency International’s Corruption Perception Index have also achieved GDP growth. India improved its overall rank from 94th in 2012 to 78th in 2018. But India is still off the mark.

Even though the Corruption Act was modified in 2018, some radical amendments could help wipe out corruption altogether. In 2011, former chief economic adviser Kaushik Basu proposed that the act of giving a bribe be declared a legitimate activity. But the person taking the bribe should be punished severely. One of the advantages of this differential treatment is that when the person gives the bribe, he or she will be emboldened to act as an informer regarding the act of bribery. This will always facilitate the person taking the bribe to be caught. The upshot of this is that the bribe-taker will never get to take the bribe in the first place. This is a simple application of the Nash Equilibrium in economic theory, whereby none of the economic agents — in this case, the bribe-giver and bribe-taker — will have any incentive to deviate from the proposed deal by unilaterally changing their action. Such an idea can also be applied in many of GoI’s inclusive policies even in the financial sector.

The RBI governor, for instance, has been repeatedly espousing the idea of yield curve as a public good. In fact, there is plenty of literature on the use of public goods through the use of game theory, supporting the contention that if agents cooperate well, all players will have the opportunity to benefit. But if they work in isolation, all are likely to suffer. Basu’s suggestion of legitimising bribe-giving will raise political hackles, as it did in 2011. But it’s high time aspects of game theory are seriously applied in our policymaking.

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