corruption Flashcards
corruption
the misuse of public services for private gain
what is corruption broadly?
mismanagement of the state
OR
dysfunction of institutions governing interrelationships between state and citizens
president mobutu sese seko (congo)
looted $5 billion
angolan corruption
$1 billion of oil revenues lost in 2001
world bank institute
total bribes in a year to be about $1 trillion (3% of world GDP)
purposes of bribes (5)
- clear a market
- incentive bonus
- reduce costs
- allow criminal activity
- create excessive regulations
bribes that clear a market
allocation of scarce resources
bribes as incentive bonus
creating red tape to generate extra revenue
bribes that reduce costs
escaping excessive regulations (safety, environmental, etc.)
bribes to allow criminal activity
criminal groups extend their reach to legal business & politics
bribes create excessive regulations
public officials have incentives to create distortions
types of measures of corruption (3)
- indicators created by private sector risk assessment firms
- cardinal measures
- averages of ratings created by perceptions of corruption by a number of sources
indicators of corruption created by private sector risk assessment firms
international country risk guide (ICR) measures the probability that a bribe will be demanded + the extent to which bribes are demanded at different layers of gov
cardinal measures
international crime victim surveys (ICVS) asks about bribes paid by urban households
averages of ratings
- Transparency International and Corruption Perception Index
- Kaufmann, Kraay and Mastruzzi (2003) have a Control of Corruption measure
effects of corruption
- less growth
- less investment
- undermined public finances
- limits provision of public services
explain the link between corruption to lower growth
incentives it creates to invest in rent seeking activities rather than productive investment
explain the link between corruption to lower investment
uncertainty reduces the incentive to invest
survey of firms in uganda (1995-97)
firm growth was reduced both by taxation and bribes
Fisman’s work with Indonesia firms
firms that are politically connected specialized in corruption and rent seeking; leader’s health shocks could lead to political instability and a general drop in stock prices
Khwaja and Mian (2004) in Pakistan
politicians join firms or start new ones to use public resources
common characteristics of countries with high corruption (4)
- developing countries/transition countries
- historical experience of socialist governments
- low-income levels (bribing replaced by lobbying as countries develop)
- closed economies
institutional theories for corruption
- economic factors (income levels, human capital)
- direct role of weak institutions
- historical traditions (influence of religion)
economic policy impact on corruption
restricted competition in the marketplace which creates incentives for bribing
examples: lack of open trade, excessive regulations, lack of press
electoral rules impact on corruption
type of electoral assortment affect the level of corruption
what are the most robust determinants of corruption? (3)
- human capital
- per capita income
- freedom of the press
study by Reinikka and Svensson (2004) on public education programs in Uganda
schools only received about 13% of the funds
Olken (2004, 2007) in Indonesia
29% of the funds for a road building project & 18% of subsidized rice in anti poverty program was stolen
Hseih and Moretti (way to measure corruption)
how much underpricing of oil there was in Iraq to get kickbacks from oil buyers? (2%)
Di Tella and Schargrodsky (way to measure corruption)
how much do prices fall when an anti-corruption drive in public procurement in hospitals was introduced in Buenos Aires? (15%)
explain Di Tella & Schargrodsky (2003) experiment in Buenos Aires
announced a new strategy for controlling corruption in input purchases in public hospitals (were previously decentralized w/ no incentive to save money)
reform: procurement officers forced to report on price, quantity, brand, and supplier of each purchase
what are the demand & supply sides of corruption?
demand: conditioned by firms’ ability to bribe
supply: bribes as bonuses
why do higher wages not necessarily reduce corruption? (2)
- if officer and briber bargain over the bribe, then the bribe increases with the wage of the officers
- just total bribe revenue might increase
cultures of corruption
- if everyone else is taking bribes, lower odds of getting caught
- active pressure to be corrupt –> more corrupt types might select into the agency
Rauch and Evans (2000) & Treisman (2000)
no systematic evidence that higher wages deter corruption
Van Rijckhegem and Weder (2001)
evidence that higher wages deter corruption
Ades and di Tella (1999)
if there is a lot of competition, ability of bureaucrats to extract bribes is lower
Bliss and di Tella (1997)
corruption can foster firms exiting, leading to less competitive market
(De Soto 1989, Shleifer and Vishny 1993)
regulatory regime is a response to being able to extract rents
Rose Ackerman (1978)
layered processes expand opportunities for bribery at each level, even though increased competition between bureaucrats can decrease corruption
what are two ways that competition can affect corruption?
- accountability of incumbents
- electoral politics between parties at the time of election
Bardhan and Yang (2005) argument about political competition
may lead to competitive populism
competitive populism
use of money-power to seek short term political advantage at the expense of decisive political actions benefiting the long term
Banerjee and Pande (2007)
(if quality = how corrupt) as competition increases, less likely that more corrupt politician wins
explain ethnic politics of uttar pradesh (3)
- 80% majority Hindu
- large coalition of lower caste group emerged recently (1984, then 1992)
- over 70% of voters vote based on their caste identity
results of ethnic politics of uttar pradesh (3)
- jurisdictions with large ethnic bias had larger increases in corrupt winning candidates
- jurisdictions with low bias did not
- non-majority candidates had to prove themselves much harder in jurisdictions with high bias
why is fighting corruption difficult?
putting more money into enforcement institutions makes them turn corrupt
Hong Kong solution to corruption (4)
- changed laws to make a corrupt officer guilty until proved innocent
- created independent bodies to investigate corruption
- wages of public officials increased
- public officials rotated so that they would not develop long term relationships with “clients”
drawback of top-down monitoring
assumes that the law enforcers are not corruptible
grassroot monitoring (Olken, 2007)
- field experiment in 608 Indonesian villages about to start public projects
- randomly selected villages were told that the project would be audited by an external agency
- other villages where selected to hold “accountability meetings” in which project officials would report how they spent the project funds
