Corruption

This article examines five common misunderstandings about case-study research: (a) theoretical knowledge is more valuable than practical knowledge; (b) one cannot generalize from a single case, therefore, the single-case study cannot contribute to scientific development; (c) the case study is most useful for generating hypotheses, whereas other methods are more suitable for hypotheses testing and theory building; (d) the case study contains a bias toward verification; and (e) it is often difficult to summarize specific case studies. This article explains and corrects these misunderstandings one by one and concludes with the Kuhnian insight that a scientific discipline without a large number of thoroughly executed case studies is a discipline without systematic production of exemplars, and a discipline without exemplars is an ineffective one. Social science may be strengthened by the execution of a greater number of good case studies.

This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types, geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts.

This paper examines whether access to information enhances political accountability. Based upon the results of Brazil's recent anti-corruption program that randomly audits municipal expenditures of federally-transferred funds, it estimates the effects of the disclosure of local government corruption practices upon the re-election success of incumbent mayors. Comparing municipalities audited before and after the elections, we show that the audit policy reduced the incumbent's likelihood of re-election by approximately 20 percent, and was more pronounced in municipalities with radio stations. These findings highlight the value of information and the role of the media in reducing informational asymmetries in the political process.

Volpin, and seminar participants at the Darden conference on emerging markets, the Indian School of Business, the University of Amsterdam, and the World Bank for detailed discussions and/or comments on earlier drafts, and David Samuels for sharing part of the data on campaign contributions. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not represent the views of the International Monetary Fund, the World Bank, their Executive Directors, or the countries they represent.

Back cover text: If the new fin de siècle marks a recurrence of the real, Bent Flyvbjerg’s Rationality and Power epitomizes that development and sets new standards for social and political inquiry. The Danish town of Aalborg is to Flyvbjerg what Florence was to Machiavelli: a laboratory for understanding the real workings of power, and for grasping what they mean to our more general concerns of social and political organization. Politics, administration, and planning are examined in ways that allow  a rare, in-depth understanding. The reader witnesses, firsthand, the classic and endless drama which defines what modernity and democracy are and can be.

This paper tests the proposition that a free press may be a powerful control on corruption. We find evidence of a significant relationship between more press freedom and less corruption in a large cross-section of countries. This result is robust to specification and sample and the relationship is not sensitive to the choice of a particular measure of corruption or of press freedom. Furthermore we present evidence which suggests that the direction of causation runs from higher press freedom to lower corruption. 

As is increasingly recognised in academic literature and by international organisations, corruption acts as a major deterrent to growth and development. The aim of this survey is to organise and summarise existing theoretical and empirical work on corruption with a view to identifying opportunities for further research. The paper begins with a brief overview of key definitions of corruption, and then turns to a review of the factors that favour or deter the growth of corruption together with a brief look at related models. This is followed by an examination of the consequences of corruption for society, and the consideration of measures that might help to reduce corruption. The paper ends with suggestions for future research and includes summaries of data sources and key variables for use in this research.

Is corruption systematically related to electoral rules? Recent theoretical work suggests a positive answer. But little is known about the data. We try to address this lacuna by relating corruption to different features of the electoral system in a sample of about eighty democracies in the 1990s. We exploit the crosscountry variation in the data, as well as the time variation arising from recent episodes of electoral reform. The evidence is consistent with the theoretical priors. Larger voting districts-and thus lower barriers to entry-are associated with less corruption, whereas larger shares of candidates elected from party lists-and thus less individual accountability-are associated with more corruption. Individual accountability appears to be most strongly tied to personal ballots in plurality-rule elections, even though open party lists also seem to have some effect. Because different aspects roughly offset each other, a switch from strictly proportional to strictly majoritarian elections only has a small negative effect on corruption.

This article presents results from the first statistically significant study of traffic forecasts in transportation infrastructure projects. The sample used is the largest of its kind, covering 210 projects in 14 nations worth U.S.$59 billion. The study shows with very high statistical significance that forecasters generally do a poor job of estimating the demand for transportation infrastructure projects. For 9 out of 10 rail projects, passenger forecasts are overestimated; the average overestimation is 106%. For half of all road projects, the difference between actual and forecasted traffic is more than ±20%. The result is substantial financial risks, which are typically ignored or downplayed by planners and decision makers to the detriment of social and economic welfare. Our data also show that forecasts have not become more accurate over the 30-year period studied, despite claims to the contrary by forecasters. The causes of inaccuracy in forecasts are different for rail and road projects, with political causes playing a larger role for rail than for road. The cure is transparency, accountability, and new forecasting methods. The challenge is to change the governance structures for forecasting and project development. Our article shows how planners may help achieve this.

This study presents evidence about relations between national culture and social institutions. We operationalize culture with data on cultural dimensions for some 50 nations adopted from cross-cultural psychology and generate testable hypotheses about three basic social norms of governance: the rule of law, corruption, and democratic accountability. These norms correlate systematically and strongly with national scores on cultural dimensions and also differ across cultural regions of the world. Using a linguistic variable on pronoun drop as an instrument for cultural emphases on autonomy versus embeddedness points to a significant influence of culture on governance, with a clear link to economic outcomes. Using cultural profiles of a previous generation as an instrument indicates relative stability of cultural orientations and of their correlates. The results suggest a framework for understanding the relations between fundamental institutions of social order as well as policy implications for reform programs.

This study examines the effects of various policies on foreign direct investment (FDI) flows from the perspective of the "eclectic theory" of international investment, and hence the advantages of foreign ownership, host country location, and internationalization. Host country policies can influence FDI flows primarily through their influence on the advantages of location in the host country. Pooled cross-section and time-series data for 49 less-developed countries (LDCs) over 1970-95 are used to examine the effects of several different types of policy/institutional variables, including corporate tax rates, tariff rates, the degree of openness to international capital flows, exchange rate distortions, contract enforcement, nationalization risk, bureaucratic delay and corruption. A multivariate analysis of the effects on FDI flows of each type of policy, with and without controls for other relevant determinants is conducted. Two different sources of FDI data are employed as well as two different measures of capital controls. Although there are methodological problems in estimation, and especially collinearity problems, and relatively severe availability constraints for some of the relevant measures, the results demonstrate the relevance and importance for FDI flows of many of the policy/institutional variables under study. They also indicate that the results from panel methods yield results that differ rather significantly from those obtained from pure cross-section analysis. Because of complementarity between the various elements of a healthy investment climate, the effects of some policy reforms estimated from models which do not control for changes in other policies may overstate the effectiveness of individual policy reforms.

This paper examines the impact of corruption on foreign direct investment (FDI). It argues that corruption results not only in a reduction in FDI, but also in a change in the composition of the country of origin of FDI. It presents two key findings. First, corruption results in relatively lower FDI from countries that have signed the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. This suggests that laws against bribery abroad may act as a deterrent against engaging in corruption in foreign countries. Second, corruption results in relatively higher FDI from countries with high levels of corruption. This suggests that investors who have been exposed to bribery at home may not be deterred by corruption abroad, but instead seek countries where corruption is prevalent.

This paper investigates and explains the cross-country pattern in the 1999 corruption index from Transparency International. The economic part of the model has four variables: the level and growth of real income per capita, the inflation rate, and the economic freedom index. The ...

Many scholarly articles on corruption give the impression that the world is populated by two types of people: the "sanders" and the "greasers". The "sanders" believe that corruption is an obstacle to development, while the "greasers" believe that corruption can (in some cases) foster development. This paper takes a critical look at these positions. It concludes that the evidence supporting the "greasing the wheels hypothesis" is very weak and shows that there is no correlation between a new measure of managers'actual experience with corruption and GDP growth. Instead, the paper uncovers a strong negative correlation between growth in genuine wealth per capita -a direct measure of sustainable development -and corruption. While corruption may have little average e¤ect on the growth rate of GDP per capita, it is a likely source of unsustainable development.

Transparency is increasingly viewed as central to curbing corruption and other dysfunctions of resource-rich developing countries. The international development community has pushed transparency in resource revenues through such initiatives as the Extractive Industries Transparency Initiative (EITI). Despite the popularity of the transparency concept, its role in reducing corruption and averting the resource curse is poorly understood. This paper reviews the main mechanisms through which transparency can reduce corruption. It argues that transparency is insufficient in itself, and needs to be complemented by other types of policies. Transparency reform should focus on the areas most important to alleviating the resource curse. In view of the resource curse literature, the emphasis of the EITI on revenues rather than on expenditures appears misplaced.

What role does the business environment play in promoting and restraining firm growth? Recent literature points to a number of factors as obstacles to growth. Inefficient functioning of financial markets, inadequate security and enforcement of property rights, poor provision of infrastructure, inefficient regulation and taxation, and broader governance features such as corruption and macroeconomic stability are discussed without any comparative evidence on their ordering. In this paper, we use firm level survey data to present evidence on the relative importance of different features of the business environment. We find that although firms report many obstacles to growth, not all the obstacles are equally constraining. Some affect firm growth only indirectly through their influence on other obstacles, or not at all. Using Directed Acyclic Graph methodology as well as regressions, we find that only obstacles related to finance, crime and political instability directly affect the growth rate of firms. Robustness tests further show that the Finance result is the most robust of the three. These results have important policy implications for the priority of reform efforts. Our results show that maintaining political stability, keeping crime under control, and undertaking financial sector reforms to relax financing constraints are likely to be the most effective routes to promote firm growth.

This paper analyses how tax morale and countries' institutional quality affect the shadow economy, controlling in a multivariate analysis for a variety of potential factors. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. Relatively new available data sources offer the unique opportunity to shed more light in the understanding of a topic that has received an increased attention. We find strong support that a higher tax morale and a higher institutional quality lead to a smaller shadow economy.

This paper uses an encompassing framework developed by Murphy et al. (1991, 1993) to study corruption and how it affects income distribution and growth. We find that (1) corruption affects income distribution in an inverted U-shaped way, (2) corruption alone also explains a ...

Anecdotal evidence relates corruption with high levels of military spending. This paper tests empirically whether such a relationship exists. The empirical analysis is based on data from four different sources for up to 120 countries during 1985–1998. The association between military spending and corruption is investigated by using cross-section and panel regression techniques. The results suggest that corruption is associated with higher military spending as a share of both GDP and total government spending, as well as with arms procurement in relation to GDP and total government spending. The results can be interpreted as evidence that defense spending may be used as a component of an indicator of the quality of governance.

How does political decentralization affect the frequency and costliness of bribe-extraction by corrupt officials? Previous empirical studies, using subjective indexes of perceived corruption and mostly fiscal indicators of decentralization, have suggested conflicting conclusions. In search of more precise findings, we combine and explore two new data sources-an original cross-national data set on particular types of decentralization and the results of a firm level survey conducted in 80 countries about firms' concrete experiences with bribery. In countries with a larger number of government or administrative tiers and (given local revenues) a larger number of local public employees, reported bribery was more frequent. When local-or central-governments received a larger share of GDP in revenue, bribery was less frequent. Overall, the results suggest the danger of uncoordinated rent-seeking as government structures become more complex.

The article first describes characteristics of major infrastructure projects. Second, it documents a much neglected topic in economics: that ex ante estimates of costs and benefits are often very different from actual ex post costs and benefits. For large infrastructure projects the consequences are cost overruns, benefit shortfalls, and the systematic underestimation of risks. Third, implications for cost–benefit analysis are described, including that such analysis is not to be trusted for major infrastructure projects. Fourth, the article uncovers the causes of this state of affairs in terms of perverse incentives that encourage promoters to underestimate costs and overestimate benefits in the business cases for their projects. But the projects that are made to look best on paper are the projects that amass the highest cost overruns and benefit shortfalls in reality. The article depicts this situation as ‘survival of the unfittest’. Fifth, the article sets out to explain how the problem may be solved, with a view to arriving at more efficient and more democratic projects, and avoiding the scandals that often accompany major infrastructure investments. Finally, the article identifies current trends in major infrastructure development. It is argued that a rapid increase in stimulus spending, combined with more investments in emerging economies, combined with more spending on information technology is catapulting infrastructure investment from the frying pan into the fire.

This article presents the theoretical and methodological considerations behind a research method which the author calls ‘phronetic planning research’. Such research sets out to answer four questions of power and values for specific instances of planning: (1) Where are we going with planning? (2) Who gains and who loses, and by which mechanisms of power? (3) Is this development desirable? (4) What, if anything, should we do about it? A central task of phronetic planning research is to provide concrete examples and detailed narratives of the ways in which power and values work in planning and with what consequences to whom, and to suggest how relations of power and values could be changed to work with other consequences. Insofar as planning situations become clear, they are clarified by detailed stories of who is doing what to whom. Clarifications of that kind are a principal concern for phronetic planning research and provide the main link to praxis.

This paper tests whether corruption can be viewed as an efficient grease in the wheels of an otherwise deficient institutional framework. It does so by analyzing the interaction between aggregate efficiency, corruption, and other dimensions of governance for a panel of 54 countries both developed and developing.

This article addresses a gap in the common understanding of corruption. The rules regarding corruption at both the macro-and the micro-level are well known, as are the consequences at the macro-level. The consequences at the micro-level, however, particularly for business firms, are not well understood. With respect to rules, at both the macro-and micro-levels the rules are very clear: do not pay bribes. At the macrolevel the consequences are well known: corruption has devastating effects on societies and economies. Although not often referred to in most corruption literature, the consequences at the micro-level can be discussed. This article begins with the direct and indirect costs imposed on firms that pay bribes. Firms that pay bribes spend more time and money dealing with governments, and bear the costs of distortions of internal resources. The article then examines the negative effects of corruption on existing relationships within the firm and potential relationships with parties outside of the firm. Finally, the article examines potential criminal and civil liability that a firm exposes itself to when it pays bribes. The totality of these costs and liabilities strongly suggest that the consequences for any given firm of paying a bribe would burden rather than benefit the firm.

This paper focuses on problems and their causes and cures in policy and planning for large-infrastructure projects. First, it identifies as the main problem in major infrastructure developments pervasive misinformation about the costs, benefits, and risks involved. A consequence of misinformation is cost overruns, benefit shortfalls, and waste. Second, it explores the causes of misinformation and finds that political-economic explanations best account for the available evidence: planners and promoters deliberately misrepresent costs, benefits, and risks in order to increase the likelihood that it is their projects, and not those of their competition, that gain approval and funding. This results in the ‘survival of the unfittest’, in which often it is not the best projects that are built, but the most misrepresented ones. Finally, it presents measures for reforming policy and planning for large-infrastructure projects with a focus on better planning methods and changed governance structures, the latter being more important.

In this paper, we report on an experiment on corruption which investigates various determinants of corruptibility. We found that economics students are significantly more corrupt than others, which is due to self-selection rather than indoctrination. Moreover, our results vary with ...

The Worldwide Governance Indicators, reporting estimates of six dimensions of governance for over 200 countries between 1996 and 2005, have become widely used among policymakers and academics. They have also attracted some explicit written criticisms. In this short paper we synthesize eleven critiques offered by four recent papers. We then refute them as either conceptually incorrect or empirically unsubstantiated.

A major source of risk in project management is inaccurate forecasts of project costs, demand, and other impacts. The paper presents a promising new approach to mitigating such risk, based on theories of decision making under uncertainty which won the 2002 Nobel prize in economics. First, the paper documents inaccuracy and risk in project management. Second, it explains inaccuracy in terms of optimism bias and strategic misrepresentation. Third, the theoretical basis is presented for a promising new method called "reference class forecasting," which achieves accuracy by basing forecasts on actual performance in a reference class of comparable projects and thereby bypassing both optimism bias and strategic misrepresentation. Fourth, the paper presents the first instance of practical reference class forecasting, which concerns cost forecasts for large transportation infrastructure projects. Finally, potentials for and barriers to reference class forecasting are assessed.

Taken together, the works of Jurgen Habermas and Michel Foucault highlight an essential tension in modernity. This is the tension between the normative and the real, between what should be done and what is actually done. Understanding this tension is crucial to understanding modern democracy, what it is and what it could be. It has been argued that an effective way of making democracy stronger is to strengthen civil society. This article contains a comparative analysis of the central ideas of Habermas and Foucault as they pertain to the question of democracy and civil society. More specifically, the discourse ethics of Habermas is contrasted with the power analytics and ethics of Foucault evaluating their usefulness for those interested in understanding, and bringing about, democratic social change.

"Over budget, over time, over and over again" appears to be an appropriate slogan for large, complex infrastructure projects. This article explains why cost, benefits, and time forecasts for such projects are systematically over-optimistic in the planning phase. The underlying reasons for forecasting errors are grouped into three categories: delusions or honest mistakes; deceptions or strategic manipulation of information or processes; or bad luck. Delusion and deception have each been addressed in the management literature before, but here they are jointly considered for the first time. They are specifically applied to infrastructure problems in a manner that allows both academics and practitioners to understand and implement the suggested corrective procedures. The article provides a framework for analyzing the relative explanatory power of delusion and deception. It also suggests a simplified framework for analyzing the complex principal-agent relationships that are involved in the approval and construction of large infrastructure projects, which can be used to improve forecasts. Finally, the article illustrates reference class forecasting, an outside view de-biasing technique that has proven successful in overcoming both delusion and deception in private and public investment decisions.

This paper aims to shed some more light on the current debate related to corporate social responsibility (CSR), specifically considering multinational enterprises (MNEs) and the complexities they face when dealing with international issues and a range of stakeholders. It discusses notions of CSR in the context of wider debates, including the question for whom and for what the firm exists, how responsibilities can or should be managed and by whom, and what room there is for managerial discretion. Particular attention is paid to cross-cultural differences, exploring the existing variety in ethical and societal norms relevant to MNEs: those originating from international agreements, those that are part of a so-called 'market morality' and those applicable in home and host countries. Although these norms may overlap, they can diverge as well, leaving ample room for managerial discretion in a 'moral free space'. The paper also explores recent trends, particularly the increasing importance of emerging economies such as China, which suggests that the picture is becoming even more complex, pointing at clear challenges for research and practice.

While leadership scholars increasingly acknowledge the influence of followers in the leadership process, less attention has been paid to their role in the destructive leadership process. Specifically, the current debate lacks a broad-based understanding of different susceptible follower types that synthesizes related research across academic domains. Expanding on Padilla, Hogan, and Kaiser's (2007) toxic triangle model of destructive leadership, we integrate research and theory across various academic literatures to derive a cohesive taxonomy of vulnerable followers that we call the susceptible circle. We describe the core characteristics of each follower type, drawing on Barbuto's (2000) theory of follower compliance to highlight the psychological processes that motivate each follower to comply with destructive leaders. We then conclude by discussing theoretical and practical implications, as well as avenues for future research.

Is guanxi ethical? This question is largely ignored in the existing literature. As guanxi has an impact on the wider public other than the guanxi parties, it must be studied in the context of all stakeholders. This paper examines the ethical dimension of guanxi by focusing on the consequences of guanxi in business, from ethically misgiving behaviour to outright corruption.

Community-driven development (CDD) is being currently proposed as the main avenue to fighting poverty and circumventing the shortcomings of state-directed aid resources. One of the main difficulties in CDD programs lies in their vulnerability to capture by local elites. The paper discusses the possibility of mitigating this problem through a so-called leader-disciplining mechanism (LDM) that relies on a sequential disbursement procedure supported by a fraud detection mechanism. On the basis of the LDM framework, it is argued in particular that too quick and massive a rush on CDD may prove self-defeating in the sense that the share of aid resources actually reaching the poor will be low if donor agencies are impatient to achieve results.

Employing a theoretical framework derived from the policy innovation and diffusion literature, this research examines how variations over time and across state sociopolitical systems influence states' adoption of accountability policies in higher education. Specifically, factors influencing the adoption of three kinds of performance-accountability policies for public higher education in the period 1979-2002 were investigated. Findings from the event history analysis supported the authors' original hypotheses only in part; the primary drivers ofpolicy adoption were legislative party strength and higher-education governance arrangements, but the direction of these influences varied across the policies studied.

This paper explores the oil discovery announcements in Sao Tome and Principe (1997-1999) to assess the role of natural resources in determining corruption. For this purpose, we use a natural experiment framework which contrasts Sao Tome and Principe to Cape Verde, a control West African country sharing the same colonial past and important recent economic and political shocks. Our measurement is based on tailored household surveys we conducted in both island countries. The unique survey instrument was retrospective and used personal histories to elicit memories from the respondents. We analyze changes in perceived corruption across a wide range of public services and allocations. We find clearest increases on vote buying, education (namely in the allocation of scholarships) and customs, ranging from 31 to 40% of the subjective scale. We interpret these findings as symptoms of increased competition for core state resources. JEL Codes: D73, O13, O55, P16.