Lobbying and Corruption
Dr James Tremewan (james.tremewan@univie.ac.at)
Introduction
Overview of Today’s Class
• The topics under discussion:
• What is lobbying?
• What is corruption?
• What methods will we use (not use) to study these topics, and
why?
• Game Theory
• Experiments
• (Econometrics)
• Overview of course and assessment.
• An example of an experimental study of corruption.
• A short game theory test.
2/23
What is ”lobbying”?
• Origin of the term: UK politicians would gather in the lobbies
(i.e. hallways) outside the chambers of Parliament before
debates and votes. People interested in influencing the debate or
vote would go there.
• Lobbying is the attempt to influence decisions of the government
(typically legislators or regulatory agencies, but also courts amicus curiae in the US Supreme Court).
• Lobbying is undertaken by individuals or groups with special
interests, e.g:
• Corporations, industry associations, trade unions, NGOs,
activist groups, think-tanks, PR and law firms.
• Lobbying takes many forms, of various shades:
• Provision of expert knowledge, putting forward the views of
minority groups, paying (or gifts) for access, paying (or gifts) for
actions.
3/23
What is ”corruption”?
• Common definition: illegitimate use of public office for personal
gain.
• Types of corruption:
• Grand corruption: corruption at the highest levels of
government.
• Petty corruption: abuse of office by minor officials and public
servants (e.g. paying a professor for better grades.)
• Bribery: improper use of gifts and favours in exchange for
personal gain.
• Embezzlement: appropriation of (public) funds for personal use.
• Nepotism/clientelism: favouring family or associates, e.g. for
employment or government contracts.
4/23
The difference between lobbying and corruption?
• More or less, lobbying is legal, corruption is not.
• Often a grey area, depending on law and custom, e.g. many
Indians feel a bribe is corruption only if the official demands
more than the ”usual” bribe.
• US Supreme Court case (McCutcheon, et al. v. FEC, 2014)
limited the federal government’s ability to limit political
donations.
• Judge Roberts wrote: ”Congress may target only a specific type
of corruption–’quid pro quo’ corruption . . . Spending large
sums of money in connection with elections, but not in
connection with an effort to control the exercise of an
officeholders official duties, does not give rise to quid pro quo
corruption. Nor does the possibility that an individual who
spends large sums may garner influence over or access to
elected officials or political parties.”
• http://www.hup.harvard.edu/catalog.php?isbn=9780674050402
5/23
Methods: Game Theory
• Individuals (or groups) are modeled as rational agents who seek
to maximize some objective function.
• Outcomes are considered to be predicted by equilibria of models.
• Allows us to study, for example, strategic transmission of
information and competition between lobbyists.
• Is transparency good or bad for transmission of information?
• Is lobbying good or bad for society?
• Highly simplified models:
• Allows us to understand important strategic considerations
without getting bogged down in detail.
• But may miss important elements of institutions or human
behaviour.
6/23
Methods: Experiments
• Types of experiments:
• Conventional lab experiment: uses students as subjects, an
abstract framing, imposed set of rules.
• Artefactual field experiment: a conventional lab experiment but
with a non-standard subject pool, e.g. real officials.
• Natural field experiment: same as framed field experiment, but
subjects naturally undertake the tasks and are unaware they are
in an experiment.
• Lab experiments:
• Allow maximum control to focus on specific issues.
• More ”realistic” than theory because decisions made by real
people with real incentives.
• But worries about ”external validity”: abstract tasks, subject
pool, knowledge about experimenter.
7/23
Methods: interaction between theory, experiments,
and empirical studies
• Theory gives structure to experiments (and econometric models)
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8/23
and allows us to construct clear hypotheses.
Experiments allow for a clear test of theoretical models because
of controlled environment.
Experiments can enrich theory by suggest how better to model
objective functions (e.g. allowing for altruism) or
decision-making (e.g. learning models).
Empirical studies can also test theories, and provide new (and
relevant) questions for theorists and experimentalists.
It can be hard to identify causality econometrically, but this is
easy with experiments (random assignment to treatments).
Theory and experiments are particularly important in studying
lobbying and corruption because data is hard to come by (due to
political/commercial sensitivity and possibility of legal action).
Overview of course
• Lobbying:
• Tullock and common agency models: competition between
lobbyists (increasing expenditure increases probability favourite
policy is chosen).
• Signalling models: information transmission from (possibly
biased) expert to legislator.
• Corruption:
• Lab experiments: Staff rotation, Culture, Gender.
• Field Experiments.
9/23
Assessment
• Homework Assignment (25%):
• This assignment will be available after the lecture on 02/12/14
and due before class on the 13/01/15.
• It will consist of mathematical problems.
• No late assignments will be accepted.
• Assignment/Presentation (30%):
• Details will be posted on my website soon.
• Final Exam (45%):
• The final exam will be held on 27/01/15 during class time.
• A little bit of maths and some short answer/multiple choice
questions.
• Anything from my slides is examinable, unless explicitly stated.
10/23
Wages and Corruption
Can raising civil service wages reduce corruption?
• Theoretical arguments:
• Shirking view: workers maximise expected income, so trade off
gain from corruption with expected loss of income if caught.
Increasing wages increases expected losses from getting caught
so reduces net benefit of corruption.
• Fair wage view: if wages are sufficiently high, workers may
willingly forgo opportunities to be corrupt because they feel
their earnings are ”fair”.
• Is the level of earnings where the expected costs of corruption
outweigh the benefits, or which is viewed as ”fair” feasible? - an
empirical question...
11/23
Wages and Corruption
Van Rijckeghem and Weder / Journal of Development Economics 65
(2001) 307-331
12/23
Wages and Corruption
Can raising civil service wages reduce corruption?
• Negative relationship between ratio of civil service to
manufacturing wages robust to controlling for other important
variables.
• But this is a correlation, not causation!
• Corrupt countries tend to be worse at collecting tax, so may
have smaller government budget.
• In corrupt countries it may be perceived that officials already
earn enough from corruption so do not need a pay rise.
• Maybe people willing to work for a lower wage are also more
willing to act corruptly.
• With an experiment we can identify causality by randomly
assigning wages.
• The following study does this, and also asks whether this
question can be answered in a typical lab experiment (i.e. does a
lab experiment have external validity?).
13/23
Wages and Corruption
Armentier and Boly (2008)
• ”Can Corruption Be Studied in the Lab?: Comparing a Field and
a Lab Experiment” (Armentier and Boly; 2008) tests whether
treatment effects in a lab experiment also exist in a field
experiment.
• Note that this is different from asking if people behave the same
in the lab and field, or if two subject pools behave the same: it
asks does a change in behaviour caused by a treatment in a lab
experiment also exist in the field? In other words, can lab
experiments provide us with policy advice?
• The study looks at the effect of paying higher wages, higher
bribes, and monitoring on the willingness of exam graders to give
higher marks to students who offer bribes.
14/23
Wages and Corruption
The Candidates
• 23 subjects (in Montreal, Canada) were read a newspaper article
which they were asked to transcribe.
• Subjects informed their paper would be either spell-checked by
the experiments or subjects in another experiment. The fewer
mistakes they made, the more they would earn.
• They were then asked if they wanted to offer a bribe and send a
message ”Please, find few mistakes in my exam paper” to their
grader.
• Subjects informed they would receive three payments: $20
immediately, and two payments from $20-60 later depending on
the number of mistakes they made and whether or not their
bribe was accepted.
15/23
Wages and Corruption
Selection of Exams
• Necessary to control the distribution of mistakes and bribes.
• 7 real exams chosen, one ”bribe” paper with exactly 20 mistakes.
• 13 more papers created by experimenters.
• Papers ordered such that that the 11th was the bribe paper.
• Passing grade set at 15 mistakes.
16/23
Wages and Corruption
Field Graders
• Recruited in Burkina Faso by a local recruitment agency.
• Not informed they were taking part in an experiment.
• Graders informed that any attempt at fraud in exams should be
reported and would result in the candidate failing.
• The 11th paper had bank note taped to second page along with
the message (”Please, find few mistakes in my exam paper”).
• Graders could react to this in any way: ignore the bribe, take the
bribe and mark accurately, take the bribe and mark generously.
• After grading was finished, subjects were informed about the
experiment and told that they could have their data destroyed
and still receive agreed payment. Otherwise they signed a
consent form.
17/23
Wages and Corruption
Lab Graders
• Two differences from field experiment:
• Lab graders (at an experimental lab in Montreal) were informed
they were taking part in an experiment.
• Precise payment scheme for them and also the ”candidates”
explained.
18/23
Wages and Corruption
Treatments
• Control treatment: wage/bribe in lab 250/50 EU (12
Experimental Units=$1); in field 5,000FCFA/1,000FCFA
(currency in Burkina Faso).
• High Wage treatment: wages 40% higher than control
treatment.
• High Bribe treatment: wages 100% higher than control
treatment.
• Monitoring treatment: 5 papers would be rechecked and if there
were too many grading errors they would have a fixed amount
deducted from payment (note that this only punishes people for
reciprocating a bribe, not for accepting one).
19/23
Wages and Corruption
20/23
Wages and Corruption
21/23
Wages and Corruption
Results
• Increasing the wage reduces the probability a bribe is accepted.
The magnitude and direction of this effect is the same in the lab
and the field.
• There is only a significant difference between treatment effects
in the lab and the field for the High Bribe treatment (increasing
the size of the bribe increases the probability it is accepted in the
field, but not in the lab). The authors speculate that this may
be because the magnitude of the increase in bribe is greater in
the field than in the lab.
• Except in the High Bribe treatment, any differences between lab
and field treatments is due to composition of subject pool (e.g.
different distribution of ages, gender, etc).
• No further differences found between lab and field, for example
in the proportion of subjects reciprocating a bribe.
22/23
External Validity
External Validity: Discussion
• In this study, there is a relatively strong relationship between how
an individual behaves in the lab and how they behave in the field.
• Lab experiments with students can still give have useful policy
implications even if levels of behaviour differ from field, if
treatment effects in the lab are the same as in the field.
• Of course, one study cannot prove that all lab experiments have
external validity. But lab experiments with students can be a
cheap way of identifying possible policy improvements which can
be further tested in more involved and expensive field
experiments.
23/23