Corruption has become a central issue in economic development policy (recently a Canadian company was barred from all World Bank contracts for three years because it was convicted of bribing officials in a developing country.One of the explanations for the high level of corruption in some countries is that wages for civil servants are so low that the MU of additional income (bribes) is very high and the cost of getting caught (losing one's job and its income) is very low.Two approaches that are put forth to deal with corruption are increased enforcement and higher wages for civil servants.Examine the efficacy of each o f these approaches.

Suppose that a typical civil serpent has an indirect utility function given by U = (S + B)0.75,where S is salary and B is the amount of the bribe accepted.If he or she accepts a bribe, there is a small chance (probability ) that he or she will be caught and will not be able to collect any bribes and will lose his or her job (and the salary that goes with it).Suppose that currently the salary level is $10,000 and a civil serpent can collect a bribe of $5,000 providing that he or she is willing to take the chance of getting caught.The probability of getting caught is p = 0.10.

(a) Based on these initial parameters, should the civil servant accept a bribe?Why or why not? (Hint: Calculate the expected utility and the utility for the certain income (i.e. not taking a bribe)

(b) You have been hired by the World Bank to analyse this problem and evaluate two possible policy options.Policy 1 is to increase the salary for civil servants to $30,000 in an attempt to make it more costly for them to get caught accepting bribes.Policy 2 is to hire more corruption investigators (assuming that the investigators themselves cannot be corrupted).Doing so will raise the probability of being caught accepting bribes top = 0.30.Which of these two policy options will stop civil serpents from accepting bribes? Be specific and explain.