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 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 8 th 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 8 th win

Collusion or effort? H0: unusually high percentage of winning the 8 th match is due to collusion between wrestlers H1: wrestler who has 7 wins exerts more effort to get the 8 th 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