Corruption

Measuring corruption

• Transparency international (TI) – Corruption perception index

• The CPI ranks more than 150 countries by their perceived levels of corruption, as determined by expert assessments and opinion surveys.

– Global corruption barometer• public opinion survey, 59,661 respondents in 63 countries.

– Bribe payers index 2006• 30 leading exporting countries, responses of 11,232

business executives from companies in 125 countries

Corruption perception index 2006

CPI 2006: Eastern Europe and Former Soviet Union

Global corruption barometer 2005

Does corruption reduce economic growth?

• Corruption might raise economic growth (Leff, 1964; Huntington, 1968)– Help avoiding bureaucratic delays in countries with

cumbersome regulations– Encourage bureaucrats to work harder

• Corruption reduces economic growth– Discourage investing in long-run projects (Mauro,

1995)– Distort allocation of resources – less in transparent

projects (education) more in hard-to-monitor projects (construction) – Shleifer and Vishny (1993)

Empirical investigation (Mauro, 1995)

• Support the hypothesis that corruption reduces economic growth

• Reduction of corruption by one standard deviation leads to– Increase in investment rate by 2.9% per year– Increase in economic growth by 1.3% per

year

• The result holds regardless of how cumbersome the laws are

What are the determinants of corruption?

• Triesman, 2000– Whether country was democratic for decades– openness to trade– cultural and institutional traditions

• Protestantism• Colonial origin

– Economic development

Specific instances of corruption

• Height distribution of French males was influenced by minimum height for conscription (Quetlet, 1846)

• Political connections influenced stock prices of private companies (Fisman 2001)

• Corruption and sport (Duggan and Levitt, 2002)

Corruption and Sumo (Duggan and Levitt, 2002)

• Non-linearity in payoffs:– normally a win increase ranking of an athlete

by 3 spots– the 8th win increase ranking by 11 spots

• Irregular form of distribution of wins– distribution of wins closely follows binomial

distribution– there are unusually high frequency of winning

the 8th win

Collusion or effort?

• H0: unusually high percentage of winning the 8th match is due to collusion between wrestlers

• H1: wrestler who has 7 wins exerts more effort to get the 8th win

Indirect evidence in favor of collusion

• The next time that those same two wrestlers face each other, it is the opponent who has an unusually high win percentage

• Win rates for wrestlers on the bubble vary in accordance with factors predicted by theory to support implicit collusion. – success rates for wrestlers on the bubble rise

throughout the career – success rates for wrestlers on the bubble fall in the

last year of a wrestler's career.• Match rigging disappears during times of

increased media scrutiny

Indirect evidence in favor of collusion

• Some wrestling stables (known as heya) appear to have worked out reciprocity agreements with other stables: wrestlers from either stable do exceptionally well on the bubble against one another

• Wrestlers identified as "not corrupt" do no better in matches on the bubble than in typical matches, whereas those accused of being corrupt are extremely successful on the bubble.

Conclusions

• Corruption reduces economic growth through negative impact on investment

• Cultural and institutional traditions have long lasting impact on corruption levels

• Studies of specific mechanisms of corruption in various areas of life help to understand how corruption distort incentives