Steven
Gawthorpe
EXECUTIVE SUMMARY
This project seeks to critically analyze the following
issues in Central and Eastern Europe:
 How State Capture Influences Public Financial
Policy Via Public Procurement
 How
Rent-Seeking Activities Pursue Capital
Intensive Areas Over Labor Intensive Areas of
Public Spending
 How Decreases in Public Spending may Foster
Increases in Corruption Related Activity
OUTLINE
REGION: CENTRAL AND EASTERN EUROPE
Monopoly
GENERAL FORMULA
Discretion
Accountabilit
y
Corruption
STATE CAPTURE
“In a state where corruption
abounds, laws must be very
numerous” Publius Cornelius
Tacitus
• State capture is the manipulation of laws,
rules, and regulations of public policy with
the intention to serve private interests
HOW INEFFECTIVE POLICY FUELS
RENT-SEEKING
•
Instructive Example: How the All Pay Auction
Concept Instigates Rent-Seeking Behavior
 The Consequences?
 Misallocation of Social Resources
 Rewarded Incentives for Illicit Behavior
 Asymmetric Information
 Major Barriers to Market Entry
ISSUE: HYPOTHESIS
 Areas of corruption in public
procurement that have yet to be fully
explored will emphasize the following:
 Decreases in expenditure can increase
corruption rather than decrease
 Corrupt activity is more prevalent with
capital intensive areas of procurement
than labor intensive activities
 State capture influences public
procurement policy under the umbrella
of public finance
METHODOLOGY: CORRUPTION
DIAGNOSTICS
VALUE CHAIN METHODOLOGY
 The
value chain basically lays out the
sequence of activities that a sector would
have to undertake to deliver a particular
output
 By assessing the vulnerabilities in the value
chain of the public procurement process
one can determine the exposure to
corruption related activities
PROCUREMENT CHAIN EXAMPLE
DIAGNOSTIC QUESTIONNAIRE
Is there an independent audit of the state budget?
Are there clear rules, laws, and processes for government
procurement?
Are revenue forecasts realistic?
Are there internal AND external audits?
ECONOMETRICS
 An Analysis of Variance (ANOVA) multiple linear
regression will regress:
 State capture indicators
 Government effectiveness indicators
 The results from the diagnostic questionnaires
•
The Goal is Determine:
•
•
•
Correlation
Statistical Significance
Causality
CONCLUSION: FOOD FOR THOUGHT
 The nature of corruption is
secretive and can never be
analyzed with absolute precision
 Corruption can be described
much like a black hole: you
cannot directly see it but you can
see its effects
 Through diagnostic measures this
project’s goal is to pinpoint where
corruption is most likely to occur
and analyze the potential problem
areas and contribute alternative
actionable indicators to better
serve anti-corruption policies
QUESTIONS?
References:
 Campos, E., & Pradham, S. (2007). The Many Faces of
Corruption: Tracking Vulnerabilities at the Sector Level.
Washington D.C.: The World Bank.
 Rose-Ackerman, S. (1999). Corruption and Government:
Causes, Consequences, and Reform. New York, NY:
Cambridge University Press.
 Hellman, J., & Kaufmann, D. (2002, December). The
Inequality of Influence. The World Bank. Retrieved from
http://www.worldbank.org/wbi/governance/pdf/inequality
_influence.pdf