Socio-economic typologies of bureaucratic corruption and implications

Corruption all over the world is an ancient, but it seems very topical too, concern in politics and in the media. This paper investigates spatial and dynamic aspects of corruption using cellular automata. Although cellular automata are very simple, deterministic machines and thus crude approximations of real, economic situations, they are capable of describing self organization and complex patterns (of corruption). It is shown that neither social pressure nor pure economic incentives allow for complex patterns, although social pressure may lead to clusters of corrupt and uncorrupt segments within a bureaucracy. However, blending both above characteristics is capable explaining complex behavior. Extending the concept of cellular automata through mixing rules – across space (= bureaucrats) and time (accounting for global effects) – does not affect the fundamental properties.     

Can self regulation work?: a story of corruption,impunity and cover-up

This paper analyzes the reputation-based incentives of a Self-Regulatory Organization (SRO) to detect and expose consumer fraud committed by its members, and the members’ incentives to bribe the SRO in exchange for a cover-up to avoid an external punishment. In a corruption-free benchmark, SROs are effective in detecting, exposing and deterring fraud only if exposure yields a reputation gain to the SRO, which depends on consumers inferences about the SRO’s type. However, if this case prevails the member can succeed in bribing the SRO in exchange for a cover-up and impunity. Despite this, a bribed SRO yields more vigilance and lower fraud than no self-regulation at all.      

腐败对外国直接投资影响的实证分析

本文依据世界106个国家的截面数据．分析了腐败对外国直接投资（FDI）的影响。研究结果表明，腐败与FDI之间存在显著的负相关。但是，腐败对FDI的负面影响可以在一定程度上被诸如东道国经济开放和政治稳定等积极因素所抵消。     

The effect of corruption on capital accumulation

This paper examines the effect of corruption in infrastructure development as well as in capital and labor markets, on capital accumulation and output in an overlapping generations model. Corruption affects income redistribution, government expenditures on infrastructure, firms’ incentive to invest, and workers’ incentive to supply labor. An increase in corruption in infrastructure development decreases capital accumulation and output if the decrease in the savings of ordinary workers is sufficiently large. An increase in corruption in the capital market decreases capital accumulation and output. An increase in corruption in labor market decreases capital accumulation and output when labor supply is completely inelastic. Simulation results based on plausible parameter values indicate that an increase in corruption in the labor market will also reduce labor supply, capital accumulation and output.      

Trade and financial liberalization with asymmetric information in bank financing

We investigate trade and financial openness in a small developing country where entrepreneurs need bank financing to operate in an import‐competing sector but banks do not observe their ability. This informational asymmetry causes adverse selection of low‐ability individuals into entrepreneurship and also prevents poor but able individuals from being entrepreneurs. We find that trade opening improves national welfare, but a tax is needed on foreign financial capital. Trade opening reduces an income gap between the rich and the poor, while financial opening affects this income gap ambiguously.     

A controlled field experiment on corruption

This paper reports on a controlled field experiment on corruption designed to address two important issues: the experimenter's scrutiny and the unobservability of corruption. In the experiment, a grader is offered a bribe along with a demand for a better grade. We find that graders respond more favorably to bigger bribes, while the effect of higher wages is ambiguous: it lowers the bribe's acceptance, but it fosters reciprocation. Monitoring and punishment can deter corruption, but we cannot reject that it may also crowd-out intrinsic motivations for honesty when intensified. Finally, our results suggest several micro-determinants of corruption including age, ability, religiosity, but not gender.     

Measuring and combating corruption

Corruption thrives on misinformation and secrecy. In the Global Corruption Report 2003 , Transparency International ( TI ) puts access to information at the top of its agenda. TI catalogues a climate of mistrust that is working against the interests of shareholders and employees in the market economy, and against the interests of the developing world when economic and business decisions are taken on the basis of the size of a kickback rather than quality, competence and value for money. A sustainable and prosperous society requires a national integrity system based on the rule of law, checks and balances, and a thriving independent media and civil society.     

Petty corruption

This paper analyzes a petty corruption model in which the entrepreneur’s type is drawn from an absolutely continuous probability distribution function F over [0, 1], and perfect Bayesian equilibrium is adopted as the solution concept for a one-stage game. In the one-stage game, if there is more than one bureaucrat, no project is approved with a strictly positive probability. For an infinitely repeated game, I show that the single window policy strictly increases the social benefits in a socially optimal equilibrium. I would like to thank Mukul Majumdar for valuable guidance and encouragement. I am also grateful to Kaushik Basu, Fernando Vega-Redondo, an anonymous referee, seminar participants at the international meeting for public economic theory (PET07) and especially Ani Guerdjikova and Roy Radner for helpful comments. Thanks are due to Hideaki Goto and Eunkyeong Lee for useful conversation.     

Can bribery buy health? Evidence from post-communist countries

Corruption is pervasive, but we know little about its effects on individual lives. Using individual-level data from 28 post-communist countries, we demonstrate that bribing for public services worsens self-assessed health. We account for endogeneity of bribery and show that bribing for any type of public service, not just for health services, has an adverse impact. We also find that bribery lowers the quality of services received. Moreover, there are potentially high indirect costs of bribery since, as we show, it comes at the expense of cutting food consumption. These findings suggest that corruption is a potentially important source behind the poor health outcomes in many developing countries.     

Harassment, corruption and tax policy: reply

Saha [Eur. J. Polit. Econ. (2003)] has raised some points about our paper [Eur. J. Polit. Econ. 16 (2000) 75]. We herewith reply to these points.     

The interaction effect of economic freedom and democracy on corruption: A panel cross-country analysis

This paper examines the effects of economic freedom, democracy and its interaction term on controlling corruption. Interactive results indicate that economic freedom and democracy significantly combat corruption. Economic freedom reduces corruption in any political environment. Democracy increases corruption when economic liberalization is low.     

Common political culture: Evidence on regional corruption contagion

Although there are indications of common regional corruption characteristics, empirical studies of corruption have assumed that influences on corruption are country-specific. In this paper we report evidence based on a cross-section of 123 economies confirming that, with few specific exceptions, corruption is a regional phenomenon. Institutional change that reduces corruption in one country affects, therefore, neighboring countries.     

Evidence on corruption as an incentive for foreign direct investment

This paper assesses the relationship between corruption and inward foreign direct investment (FDI). Previous research has presumed that corruption directly enters the cost function of multinationals, suggesting a negative relationship between corruption and FDI. For a sample of 73 developed and less developed countries and the time period 1995–1999, we find a clear positive relationship between corruption and FDI. Corruption is thus a stimulus for FDI.     

Trade protection and bureaucratic corruption: an empirical investigation

Abstract .  We examine whether protectionist trade policies lead to increased bureaucratic corruption. Using multiple measures of corruption and trade policies, we find strong evidence that corruption is significantly higher in countries with protectionist trade policies. These results are robust to endogeneity concerns. Next, a panel-data-based GMM methodology is used to estimate a dynamic model of corruption. This estimator controls for country-specific effects, potential endogeneity of trade policy, and existence of measurement errors afflicting the corruption data. The paper strengthens the case for trade liberalization and argues that trade reforms may lead to improvements in governance.     

Natural resources, democracy and corruption

We study how natural resources can feed corruption and how this effect depends on the quality of the democratic institutions. Our game-theoretic model predicts that resource rents lead to an increase in corruption if the quality of the democratic institutions is relatively poor, but not otherwise. We use panel data covering the period 1980-2004 and 124 countries to test this theoretical prediction. Our estimates confirm that the relationship between resource rents and corruption depends on the quality of the democratic institutions. Our main results hold when we control for the effects of income, time varying common shocks, regional fixed effects and various additional covariates. They are also robust across different samples, and to the use of various alternative measures of natural resources, democracy and corruption.     

Quantifying corruption by a human capital earnings equation

This paper uses a human capital earnings equation to quantify administrative corruption in the public sector. Regression analyses are conducted based on information from surveys administered to public officials in Albania. After accounting for officials’ characteristics, e.g., schooling, experience, gender, type of agency, and public and private sectors’ features, we deduce that the administrative corruption was on average 2.6× the officials’ current salary in Albania, which is equivalent to 16.7% of the country’s GDP.

The relationship between economic growth and the speed of liberalization during transition

We examine existing results on the effect of speed of liberalization on growth during transition. We highlight methodological problems in existing studies, noting the existence of simultaneity and the use of variables that are not valid measures of the phenomena they supposedly represent. We implement solutions, examining the simultaneous relationship between growth and speed of liberalization. Initial conditions are much more important than policy changes in determining growth performance in the first four years of transition. Growth performance during the early years of transition has a strong effect on liberalization speed.     

Preemptive collusion among corruptible law enforcers

This paper considers collusion between a supervisor and an agent within a Principal–Supervisor–Agent model. Other papers consider the possibility of collusion after the supervisor has exerted costly effort to obtain hard (“verifiable”) evidence regarding the agent’s actions, information which, if reported would result in the agent being fined with a certain probability. That is, collusion occurs because the supervisor may accept a bribe in exchange for hiding the information he has obtained. This paper allows the supervisor and the agent to enter into a collusive contract either before or after the supervisor has exerted effort to find verifiable information regarding the agent’s actions. The former type of collusion, which occurs after the supervisor has exerted effort, entails ex-post corruption, while the latter, which occurs before the supervisor has exerted effort, entails preemptive corruption. This paper shows that although raising the supervisor’s reward discourages ex-post corruption, it can simultaneously encourage preemptive corruption. Hence, raising the supervisor’s reward will not always discourage collusion. This result further implies that though privatizing law enforcement can always be used to eliminate ex-post corruption, it cannot be used to eliminate preemptive corruption. Furthermore, when compared to ex-post collusion, an equilibrium without corruption is always socially preferred. However, when compared to preemptive collusion, an equilibrium without corruption may not always be socially preferred.