Incentives For Corruption Research Articles

Breaking the Conflict Trap? Addressing the Resource Curse in Peace Processes

Does addressing the natural dimension of armed conflicts in peace processes open opportunities for breaking the trap? Based on evidence reviewed from Sudan (North-South), Indonesia (Aceh), and other cases, this article challenges the prevailing understanding of natural resources as an enabler of armed and obstacle to peace. It argues rather that it is timely to ask: How can natural resources become part of a solution to armed conflicts and consolidate a lasting peace? The article contends that investment in natural resources can become an opportunity for peacemaking and contribute to transformation by tackling economic drivers and setting out new orders that govern a post-conflict peace. However, it is important to strengthen mediation support and construct new partnerships for peacemaking, especially with the extractive industries. KEYWORDS: natural resources, trap, peace negotiations, mediation support, extractive industries, Sudan, Aceh. SCHOLARLY RESEARCH ON THE RELATIONSHIP BETWEEN ARMED CONFLICT AND natural resources has long emphasized the impact of the latter on security, governance, and prosperity. (1) Such work has highlighted that natural resources are a crucial element in the resource curse. In the literature on civil wars, the curse is mainly captured by the conflict trap in which war wrecks the economy and increases the risk of future war. (2) In this context, natural resources foster recurring cycles of armed because they provide a revenue base for belligerents, increase claims for secession, and perpetuate state fragility through incentives for corruption and mismanagement. In this article, I investigate whether addressing natural resources in peace processes is an opportunity to break cycles of recurrent and, thereby, the trap. I highlight that natural resources can have a strategic significance for peacemaking activities. Especially for high-value, investment-intensive natural resources such as oil and mining resources, the continuation of an armed implies losses for all involved. An exclusive focus on natural resources, however, will be an elusive strategy to counter the course. Natural management must be integrated into larger dispute resolution frameworks that address the new challenges once an agreement on revenue sharing or a new future has been found. I first chart the role of natural resources in armed before setting out the rationale for addressing them in peace processes. I then present two examples on the way that natural resources were managed in the peace processes of Sudan (North-South) and Indonesia (Aceh). I also reflect on the link between needs of informality to manage the parties' internal transformation, and requests by third parties for transparent and accountable natural management. In the conclusion, I distill the case evidence and explore policy implications. Overall, I argue that natural management must be integrated into a broader political process in order to ensure that wealth translates into development benefits. Peace processes represent an important framework in which to negotiate the new future of a country and society. Natural resources are a crucial part of these negotiations because they represent the main domestic economic base. However, for this transition to occur, there is a need to strengthen mediation support activities and bring in the private sector. Natural Resources and Armed Conflict After the Cold War, a number of African conflicts placed the spotlight on the relationship between natural resources and armed conflict. The issue gained prominence through reports of the UN Security Council sanctions monitoring mechanisms on Angola, the Democratic Republic of Congo, Sierra Leone, and Liberia, and multistakeholder processes against diamonds and abusive and illegal behavior of companies in zones. …

Democracy, Rule of Law, Corruption Incentives, and Growth

AbstractWe bridge the gap between the standard theory of growth and the mostly static theory of corruption. Some public investment can be diverted from its purpose by corrupt individuals. Voters determine the level of public investment subject to an incentive constraint equalizing the returns from productive and corrupt activities. We concentrate on two exogenous institutional parameters: the “technology of corruption” is the ease with which rent‐seekers can capture a proportion of public spending. The “concentration of political power” is the extent to which rent‐seekers have more political influence than other people. One theoretical prediction is that the effects of the two institutional parameters on income growth and equilibrium corruption are different according to the constraints that are binding at equilibrium. In particular, the effect of judicial quality on growth should be stronger when political power is concentrated. We estimate a system of equations where both corruption and income growth are determined simultaneously and show that income growth is more affected by our proxies for legal and political institutions in countries where political rights and judicial institutions, respectively, are limited.

Limiting Corrupt Incentives in a Global REDD Regime

This Note addresses the potential for corruption in the emerging program to cut greenhouse gas emissions by averting deforestation. Reducing emissions from deforestation and degradation (REDD) was a main component of the bargain struck between major emitters at Copenhagen in December 2009. REDD has tremendous potential to engage developing nations in making meaningful reductions in greenhouse gas emissions—harvesting the world’s forests generates 20 percent of annual global warming pollution—while simultaneously easing the path for Annex I states to meet their binding emissions commitments. Unfortunately, REDD’s promise could also be derailed by graft and misaligned incentives, issues that have dogged the constituent pieces of a REDD program. The Clean Development Mechanism (CDM), the major existing emissions offsets market, has come under fire for failing to promote real reductions in aggregate emissions while facilitating massive wealth transfers. Further, forestry management in the developing world has long been fraught with corruption. This Note takes up the challenges the CDM and forest agencies have faced, both to uncover the sobering difficulties awaiting REDD and to discern possible solutions to those vexing problems. It concludes by suggesting institutional design and enforcement measures to craft a system that is both corruption resistant and effective at delivering the significant climate and political benefits that REDD promises.

Institutional Flaws and Corruption Incentives in India

India has achieved a respectable rate of economic growth in an environment that is quite permissive of corrupt practices to the extent that acts of corruption, if sufficiently clever, are not scorned but praised. Despite the coexistence of corruption and unprecedented economic growth we argue that there is unrealised potential for further growth that is held back by the institutions of administration and associated corruption. With growth as substantial as it has been there is less pressure on those at the top to restrain corruption. There is still significant room for the Indian economy to accelerate its growth through steps to reduce corruption particularly as it impacts businesses and individuals in their day-to-day economic pursuits. A simple framework is sketched to describe the transactions that lead to grand, systemic and petty or retail corruption. The focus of this paper is on the institutions of administration that foster corruption at all levels and the consequences of petty corruption on the poor, particularly in urban areas. Our argument is that it is difficult for India to achieve its economic potential when a large portion of the population cannot mobilise what capital it possesses and continually finds interactions with authority met with requests for bribes and other forms of harassment. However, actual and perceived corruption in a vigorous democracy like India is also an integral part of the political process. Accusations of illegal behaviour are often a routine part of the election process and campaign finance.

Japan, Korea, the Philippines, China: four syndromes of corruption

Both generalizations about "Asian corruption", and claims about greater or lesser amounts of corruption, tend to overlook the many variations existing among and within Asian societies, and among the corruption problems they experience. I suggest that deeper influences in social, political and economic development, and contrasting institutional settings, create four distinctive syndromes of corruption, each with its own set of implications for relationships between wealth and power. Japan is an example of "influence markets" in which private interests buy or rent influence over relatively specific policy outcomes within a strong state. Korea is a case of "elite cartels", in which collusion and corrupt incentives enable several kinds of elites to cooperate in governing, enriching themselves, and resisting rising political competition. The Philippines is marked by "oligarchs and clans", with powerful families and their entourages plundering a weak state in a climate of uncertainty and insecurity. China experiences "official mogul" corruption, in which officials abuse state power with impunity, although that process is becoming increasingly fragmented. The four syndromes may help us understand why corruption and rapid growth have coexisted in some, but not all, Asian states for long periods of time, and may also help us understand why some of those states will adapt to new global realities only with some difficulty. They also show how "consensus"-driven reforms emanating from the west may not only be ineffective, but may actually make matters worse.

Instability and the Incentives for Corruption

We investigate the relationship between corruption and political stability, from both theoretical and empirical perspectives. We propose a model of incumbent behavior that is driven by the interplay of two effects: A horizon effect, whereby greater instability leads the incumbent to embezzle more during his short window of opportunity; and a demand effect, by which the private sector is more willing to bribe more stable incumbents. The horizon effect dominates at low levels of stability, since firms are unwilling to pay high bribes and unstable incumbents have strong incentives to embezzle, whereas the demand effect gains salience in more stable regimes. Together, these two effects generate a non-monotonic, U-shaped relationship between total corruption and stability. On the empirical side, we find a robust U-shaped pattern between country indices of corruption perception and various measures of incumbent stability, including historically-observed average tenures and the legislative majority of the chief executive: Regimes that are very stable or very unstable display higher levels of corruption when compared to those in an intermediate range of stability.

Point Shaving: Corruption in NCAA Basketball

A new field of “forensic economics” has begun to emerge, applying price-theoretic models to uncover evidence of corruption in domains previously outside the purview of economists. By emphasizing the incentives that yield corruption, these approaches also provide insight into how to reduce such behavior. This paper contributes to this agenda, highlighting how the structure of gambling on college basketball yields pay-offs to gamblers and players that are both asymmetric and nonlinear, thereby encouraging mutually beneficial effort manipulation through “point shaving.” Initial evidence suggests that point shaving may be quite widespread. The incentives for gambling-related corruption derive from the structure of basketball betting. To highlight a simple example, the University of Pennsylvania played Harvard on March 5, 2005, and was widely expected to win. Rather than offering short odds on Penn winning the game, bookmakers offered an almost even bet (bet $11 to win $10) on whether Penn would win relative to a “spread.” In this example, the spread was 14.5, meaning that a bet on Penn would win only if Penn won the game by 15 or more points, while a bet on Harvard would be successful if Harvard either won, or lost by 14 or fewer points. The incentive for corruption derives directly from the asymmetric incentives of players, who care about winning the game, and gamblers, who care about whether a team beats (or covers) the spread. Indeed, the example above is ripe for corruption: the outcome that maximizes the joint surplus of the Penn players and the gambler occurs when Penn wins the game, but fails to cover the spread (and the gambler has bet on Harvard). The contract required to induce this outcome simply involves the gambler offering a contingent payment to the player, with the contingency being that he pays only if Penn fails to cover the spread. Given the player’s (approximate) indifference over the size of the winning margin, even small bribes may dominate his desire to increase the winning margin above 14 points, and this, in turn, yields large profits for the gambler who has bet accordingly. The betting market offers a simple technology for the gambler to commit to paying this outcomecontingent bribe: he can simply give the player the ticket from a $1,000 bet on his opponent not covering the spread. Such attempts to shave the winning margin below the point spread are colloquially referred to as “point shaving” and form the focus of my inquiry. I start by outlining the type of corruption that theory suggests will be most prevalent:

Corruption and local governance: the double identity of Chinese local governments in market reform

This paper examines China's corruption in the context of its changing central–local relations. It contends that it is not so much decentralization as the incompleteness of power devolution that has contributed to the spreading of corruption in China. The incompleteness can be seen in the development of the double identity of local government as both a state political agent and a local economic principal. As state agents, local governments obtain increased discretionary power to make and implement policies and, at the same time, they also assume the role of local economic principals to protect, promote and even directly manage local economies. The dual identity places both broad discretionary power and immediate economic benefits within easy reach of local officials. Focusing on two prevalent forms of corruption in China today, illegal land transfers and ‘little money lockers’, the paper shows how the deep involvement of local officials in economic affairs, coupled with unbridled discretionary power, provides opportunities and incentives for corruption.

Corruption and reforms: A case of Poland's medical sector

This study focuses on the effects of Poland's reforms in the period 1990–2005 on corruption in the health care system. In the last 15 years Poland has transformed its economy drastically, introducing market-oriented reforms into almost every aspect of its economy. In this study we consider how different reforms changed incentives and mechanisms facilitating corruption in the medical care sector. Our conclusion is that corruption in Poland's medical sector has worsened since the onset of the marketization reforms. We support this conclusion primarily by analyzing changes in incentives for corruption and the number of mechanisms facilitating it. In addition, where available, quantitative data are provided, though we recognize that numerical estimates of corruption are subject to substantial error. We focus on three major forms of corruption: patient payments to secure medical treatment or improve its quality, payments from industry (mostly pharmaceutical and medical equipment producers), and the use by physicians of free public facilities for private patients.

Spoljnotrgovinski rezim Republike Srbije i zona slobodne trgovine

Key to economic recovery and regional stability in Southeastern Europe (especially Western Balkans) economies is establishing institutions supporting competitive markets and integration into European markets. This should meet institutional, legal and economic objectives. From the institutional perspective, the new trade policy should be simpler in order to reduce the administrative burden and to minimize incentives for corruption. From the legal viewpoint the WTO will be the anchor of the trade policy of the countries in the region. From the economic perspective countries should seize the opportunity to sign Free Trade Agreements which boost their current and future growth, and contribute to solving their pending economic and institutional problems. Serbia and Montenegro has started to harmonize their tariff systems. This harmonized tariff should serve as the base for the negotiations with the other members of WTO before Serbia and Montenegro becomes the member of this organization.

Changing Hands: Governance and Transformation in Hungary's Financial Sector

AbstractThe early 1990s in Hungary saw rapid institutional change and severe economic downturn. Credit relations and the financial system generally suffered from widespread corruption, including the exchange of loans for bribes, self-enrichment schemes, and manipulation of such procedures as bankruptcy, state-initiated debt restructuring programs, and banking supervision processes. The cost of this early rash of corruption and later episodes through the 1990s easily runs into the hundreds of millions of dollars.Many countries in similar circumstances have failed to come to grips with these problems, with disastrous results—the paradigm example being Russia's experience leading up to the crisis of 1998. There, rapid privatization (in the absence of functioning safeguards and market institutions) opened the door to massive self-enrichment by enterprise insiders, and a loosely supervised banking system facilitated the rise of the oligarchs. Hungary saw the beginnings of this in the early 1990s. Its experiments with market socialism had ushered in a complex and murky business environment. Hybrid (state-private) corporate groups, in many cases run by former state managers, linked enterprises, banks, and the state in a collusive mutual embrace.What could be done? Economic restructuring to transform heavily corrupt incentives had to take first priority. Thus, the choices confronting Hungary in the early 1990s were tough and the stakes high. In the event, Hungary escaped the trap of failed transition. The main steps in its reform were the implementation (and adjustment) of a legal reform package known as “legislative shock therapy”, a (highly flawed) debt restructuring process, and robust privatization—especially of state holdings in the banking sector. These reforms revolutionized ownership incentives and imposed transparency on the system. The influx of foreign owners, together with the growing strength of markets and public sector institutions, brought banks and enterprises under the effective discipline of corporate governance and regulation. This helped create one of the strongest financial sectors in the region, a vibrant economy, and a reasonably well-governed and competitive marketplace. Corruption in the financial system, nearly a way of life in 1991, became far more episodic and manageable. The disciplines imposed by the applicable international regimes, especially the EU, have played an important role. There are lessons here for policymakers around the world.

Seeds of Corruption: Do Market Institutions Matter?

Economists in the field of industrial organization, antitrust, and regulation have long recognized certain factors as potent determinants of opportunistic behavior, corruption, and "capture" of government officials. Only now are these relationships becoming conventional wisdom among specialists in economies in transition. Ten years into the transition, corruption is so pervasive that it could jeopardize the best-intentioned reform efforts. Broadman and Recanatini present an analytical framework for examining the role market institutions play in rent-seeking and illicit behavior. Using recently available data on the incidence of corruption and on institutional development, they provide preliminary evidence on the link between the development of market institutions and incentives for corruption. Virtually all of the indicators they examine appear to be important, but three are statistically significant: · The intensity of barriers to the entry of new business. · The effectiveness of the legal system. · The efficacy and competitiveness of services provided by infrastructure monopolies. The main lesson emerging from their analysis: a well established system of market institutions - clear and transparent rules, fully functioning checks and balances (including strong enforcement mechanisms), and a robust competitive environment - reduces opportunities for rent-seeking and hence incentives for corruption. Both the design and effective implementation of such measures are important if a market system is to be effective. It is not enough, for example, to enact first-rate laws if they are not enforced. The local political economy greatly affects whether a given policy reform will curtail corruption. Especially important are the following factors in the political economy: · The credibility of the government's commitment to carrying out announced reforms. · The degree to which government officials are captured by the entities they regulate or oversee. · The stability of the government itself. · The political power of entrenched vested interests. Economists in the field of industrial organization, antitrust, and regulation have long recognized these factors as potent determinants of opportunistic behavior, corruption, and "capture" of government officials. Only now are they becoming conventional wisdom among specialists in economies in transition. This paper - a product of the Poverty Reduction and Economic Management Sector Unit, Europe and Central Asia Region - is part of a larger effort in the region to analyze the determinants of corruption and develop remedies. The authors may be contacted at hbroadman@worldbank.org or frecanatini@worldbank.org.

Combating Corruption in Latin America

Corruption persists as a challenge to the consolidation of Latin American democracies and to their economic development. Contrary to many expectations, policies to reduce the size of government, such as the privitization of state firms, have not proved a cure against corruption. In some cases, economic liberalization seems only to have worsened the problem. Combating Corruption in Latin America examines the relationship between democratic and market reforms and corruption, including national strategies for its reduction. Authors from across the region, the United States, and Europe, discuss the nature, methods, and historical antecedents of today's corrupt practices, including issues of institutional design, the role of international actors, and culture. These chapters raise many important questions. Can corruption in some cases be economically efficient? Does the transition to democracy and free markets increase or reduce opportunities and incentives for corruption? What policy responses are in effect at the local, national, and international levels, and are they likely to be effective? How is a growing business culture across Latin America likely to influence efforts for improved government transparency and efficiency? Contributors come from the worlds of academia, government, journalism, and international financial institutions, and bring a range of economic and political perspectives to bear on the subject. They are Alberto Ades, Fernando Carrillo-Florez, Carlos Eduardo Lins Da Silva, Rafael Di Tella, Edmundo Jarquin, Luigi Manzetti, Luca Meldolesi, Luis Moreno Ocampo, Stephen Quick, Susan Rose-Ackerman, Mark L. Schneider, Ibrahim F. I. Shihata, and Laurence Whitehead.

Devolution and the Evolution of Regional Science

Devolution is an institutional issue with several dimensions-space, ownership, and time. Because it has a spatial dimension, regional scientists are well positioned to contribute to the devolution debate. The transition from public to private ownership can create incentives for corruption. To address transitions we will need to draw on sociology and political science. Because they are more centralized, southern states may be less institutionally equipped to handle devolution than other states. Rural local governments are also less equipped than urban governments to handle devolution. Regional scientists can assist local governments with analysis and training.

Corruption and the Culture of Real Estate Development

Corruption, greed, and boom-and-bust are major features of the historiography and reportage of the real estate development industry.1 Careful empirical study of land-use and building regulation indicates how opportunities and incentives for corruption depend on the struc ture of production in development.2 Still, we have no strong evidence which indicates that the real estate industry is actually much more corrupt than others (or other professions); and many of the revered members of the industry are known within the industry for their scrupulous ethical stance and behavior.3 I shall not be making any empirical claims in this paper. However, I want to suggest that there are some cultural features of real estate development which make it quite susceptible to corruption, whether that susceptibility is taken to mean that corruption is not easily stopped here, or it is encouraged, or perhaps it is even necessary if the activity is to be pursued at all. Moreover, we have here an interesting problem in moral explana tion, for corruption is usually taken as sinful and intrinsic and cultural, and as behavioral and situation-dependent. In explaining corruption, we may justify it either as part of the web of meaning and action (namely, culture), or as a response to opportunities and incentives.4 I will consider both explanations. Now, I will assume that we are all subject to pride, envy, greed, gluttony, sloth and other such vices. But some cultural structures and situations are more likely to excite those temptations than others. And as for justification, I think most of us will agree that having been presented with a great temptation does not justify our engaging in it?if we believe it is wrong?although we may find ourselves quite understanding of those corrupted at these moments.

Political Corruption in the U.S.S.R

OVIET commentators traditionally have associated political corruption with public officials in decadent capitalist systems. The New Soviet Man, they assert, is a dedicated public servant who would never pursue private gain to society's detriment. Such commentators generally attribute instances of corruption among Soviet officials today to vestiges of the past that will wither away as the socialist system becomes ever more firmly established. Yet, an examination of political life in societies as disparate as ancient Rome and the contemporary United States indicates that none of them, including the U.S.S.R., has been entirely free from political corruption. Certainly enough public officials throughout history have been sufficiently tempted to pursue private gain at public expense to suggest that defects in the human character are an important cause of corruption. Indeed, Alexander Hamilton in The Federalist Papers writes that man is vindicative, ambitious, and rapacious, and that it has been invariably found that momentary passions and immediate interests have a more active and imperious control over human conduct than do general or remote considerations of policy, utility, or justice. While the notion that human nature is base may explain why all political systems have experienced corruption, it does not explain why some officials engage in corruption while others do not, nor why some political systems seem to have more corruption than do others. The opportunities and incentives for corruption within and among political systems help explain these differences. An analysis of such factors in the U.S.S.R. suggests that, despite Soviet claims, they are similar in kind if not degree to those found in many other societies.1 The following analysis examines the scope, incentives and opportunities for, and efforts to combat corruption in the U.S.S.R. The study defines corruption as the behavior of public officials which diverges from the formal duties of a public role to serve private ends.2 Three aspects of the definition require brief elaboration.