Corruption and individual ethics
Insights from a public procurement auction
Nikolaos Georgantzís
University of Economics in Bratislava
&
Agriculture Policy and Development
University of Reading
What do we know on corruption?
What do we know on corruption?
Let us check on
“Transparency International”
What do we know on corruption?
http://www.transparency.org/cpi2013
What do we know on corruption?
http://www.transparency.org/cpi2013
Difficult to study (many things on) corruption due to
1. Observability problems
2. (under-)Over-reporting in (dis-)honest countries
Corruption against progress
Some figures on what we know
• Estimated cost €447 billion in 2010 for the EU.
• In 8-country (Fr, Hu, It, Lt, NL, Pl, Ro, Es), 5-sector
study (in m€): Road & Rail, 500-750; Water &
Waste, 27-38; Urban utility & Construction
830-1141; Training, 26-86; R&D, 99-228.
• Types of corruption: 57 cases of Bid Rigging; 35
of Kickback (bribes), 22 Conflict of interest, 5
Mismanagement.
Typical example of Kickback
• A public administration publishes tender for the
construction of two buildings. The winning
company received €600.000 to privide technical
advice and control. Other private companies had
presented offers to do this for €400.000(!).
• Corruption-related cost overrun calculation: 50%
([600-400]/400)
Experimental literature and framework
• Abbink et al. (JLE&Org. 2002), Abbink (EJPE 2004), Abbink and
Hennig-Schmidt (ExpEco 2006): Exogenous externality, Partners vs
Strangers, Neutral vs Loaded instructions
• Cameron, Chaudhuri, Erkal and Gangadharan (JPubE 2009): Punishment
of Corrupt Behavior: Experimental Evidence from Australia, India,
Indonesia and Singapore
• Barr and Serra (ExpEco 2009, JPubE 2010): Framing and culture matter
• Ryvkin and Serra (JEBO 2012): bargaining between citizen and officer
• Burguet, R., & Che, Y. K. (RAND 2004). Competitive procurement with
corruption
• Büchner et al. (PublicChoice 2008): Procurement auction; data in line
with theory
•
Sanfey et al (Science 2008): Neural basis of economic decision making
in Ultimatum games
Three studies on corruption
Theoretical model
Monetary payoffs implemented in the
experiments
Monetary AND Psychological-Ethical Payoffs
Generalized predictions
Study 1:
The basic behavioral patterns
• LINEEX at University of Valencia
• Sample: 66 subjects (30 men)
• Random groups of 3 in 2 Treatments: Partners (1 session) vs Strangers (2
sessions)
• Anonymous, no communication
• 10 rounds
• Half-loaded instructions (“Firm”, “Town Planner”, “Project Quality”, but
not “bribe” )
Results
What about Town Planners?
Town planners’ choices
(over 2/3 of them compatible with γ<1/2)
Town Planners’ behavior slightly more pro-social
in strangers matching
What about Firms?
Firms’ choices
(modal choice compatible with γ=1/2)
Firms’ behavior relatively stable over time
Conclusion I
Subjects are not just maximizing monetary
rewards: They feel some aversion to bribery
Staff rotation as anti-corruption mechanism:
”Strangers” matching mitigates corrupt behavior
Study 2:
Adding extrinsic and triggering intrinsic
motivations
T0: 15 rounds of Baseline (T0: Partners) + 15 rounds with NEW
STAGE
Firms not obtaining the license can “blow the whistle” to inspect
for corruption (any positive bribe, B>0)
Design
T1: [15 rounds Baseline + 15 rounds of NEW STAGE] + NEW PLAYER
A receiver of the consequences of the potentially corrupt transactions:
Study 2: Lab procedures
• 1 session, 77 subjects:
– 44 firms
– 22 Town planners
– 11 citizens
• 4 treatments (Partners matching protocol)
–
–
–
–
T0: baseline
T0w: whistle-blowing
T1 baseline + citizen
T1w: Whistle-blowing + citizen
• Other-regarding Preferences
Game by Blanco et al. (2011)
from a Modified Dictator
• Risk preferences from Lotteries by Sabater-Grande and
Georgantzis (2002)
Results
Town planners’ choices
(initially, ¾ of them compatible with γ<1/2;
with whistle-blowing less than 25% of them)
Firms’ choices
(initial modal choice compatible with γ=4/3;
with whistle-blowing, modal γ is infinite)
Evolution of average bribe before and
after suing option is available
Evolution of bribe
Whistle-blowing frequency
The existence of a citizen increases firms’
psychological cost from γ=4/3 to γ=2
Risk aversion and bribing
Other-regarding preferences
Gender
Efficiency
Conclusion II
New institutions improving
social efficiency:
The whistle-blowing institution and
empathy towards citizens decrease bribes
Study 3: Physiocorruption
Some hints concerning physiology:
Affective space
Russell, 1980; Watson y Tellegen, 1985; Bradley y Lang, 1994; Feldman, 1995
Electrodermal activity
Electrodermal activity
Anticipating risk in a gambling task
Bechara, Damasio et al, 1997. Deciding Advantageously Before Knowing the Advantageous
Strategy. Science — approximately 2000 citations!
Emotional arousal and tax evasion
•Coricelli et al. Cheating, emotions, and rationality: an
experiment on tax evasion, Experimental Economics
(2010), Journal of Economic Psychology (2012):
The intensity of anticipated and anticipatory
emotions before reporting income positively
correlates with both the decision to cheat
and the proportion of evaded income. The
experienced emotional arousal after an audit
increases with the monetary sanctions and
the arousal is even stronger when the
evader’s picture is publicly displayed.
Physiolab
• Continuous EDA was recorded using BIOPAC MP150
system and a TEL100-RF telemetry module (BIOPAC
systems, Inc). The BIOPAC amplifier applies a constant
voltage (0.5 V).
• An endogenous trigger protocol was programmed to
communicate the important “moments” of the experiment
from z-Tree to the bio-data collection software.
• Two Ag/AgCl electrodes with 1 cm circular contact area prefilled with isotonic gel were attached on the subject ’ s
hypothenar eminence of the non-dominant hand.
• Prior to SCR detection, the skin conductance signal was
low-pass filtered at 0.5 Hz and smoothed using a moving
average filter with a 2 sec span.
Physiolab
Electrodes
Physiolab
Photodiodes
Study 3:
Corruption and emotions
•Implementing the “T0-then-T0w” treatment
•90 subjects: 44 women and 46 men
•Average quality:
Treatment baseline:
men: 7.42
women: 7.22
Treatment whistle-blowing:
men: 9.17
women: 9.23
Behavioral Results
Initially, over 4/5 of the town planners’
choices compatible with γ<1/2; with
whistle blowing, less than half of them is
Whistle-blowing
Bribe evolution
Efficiency
Physiological Results
Skin conductance: Firms’ decisions (BASELINE)
Skin conductance reaction of firm subjects during post-decision seconds
(Baseline treatment):
“Ethical” Firm-subjects’ SCR reveals extra arousal
Skin conductance: Town Planners’ Decision
(BASELINE)
Skin conductance reaction of town planner firm subjects during postdecision seconds (Baseline treatment):
“Ethical” Town Planners’ SCR reveals extra arousal
Skin-conductance: Firms’ decisions (WHISTLEBLOWING)
Skin conductance reaction of firm subjects during post-decision seconds
(Whistle-blowing treatment):
“Corrupt” Firm-subjects’ SCR reveals extra arousal
Skin conductance: Town Planners’ Decision
(WHISTLE-BLOWING)
Skin conductance reaction of town planners during post-decision seconds
(Whistle-blowing treatment):
“Corrupt” town planners’ SCR reveals extra arousal
An explanation of the emotional patterns
•In Baseline treatment, those who choose not to bribe (109, vs.
761 bribe choices) have intrinsic motivations against pure
monetary profit maximization.
•In Whistle-blowing treatment, extrinsic motivation is added
through the punishment threat. Now, those who still bribe (269
choices against 631 with no bribe) are the ones deciding against
their pure monetary interest.
•CLAIM: It has been often conjectured that deviations from the
selfish Homo Oeconomicus is due to emotional (as opposed to
rational) motives. Here, deviations from selfish monetary reward
maximization seem to be reflected on subjects’ emotional arousal.
Firm-subjects’ SCR while waiting for whistleblowing decision (WHISTLE-BLOWING)
Winners’skin-conductance while waiting for loser to decide whether to blow
the whistle (whistle-blowing treatment):
“Corrupt” winners’ SCR reveals extra arousal
RESPONSE TIMES
•Ariel Rubinstein. "Instinctive and Cognitive Reasoning: A Study of
Response Times." The Economic Journal 117 (2007): 1243-1259.
•
“It is suggested that choices made instinctively, that
is, on the basis of an emotional response, require less
response time than choices that require the use of
cognitive reasoning.”
Response times and SCR
In all cases, higher arousal captured
by subjects’ SCRs, coincides with
higher decision times:
We confirm the conjecture that
more instinctive decisions
(generating or resulting from less
conflict) are made faster.
RESPONSE TIME CONCLUSION
•Physiological results: Bribing in baseline and NOT bribing in “whistleblowing” treatments are the (instinctive) money-maximizing benchmarks.
The deviations from them are less instinctive and derive from a more
emotionally/cognitively charged decision process.
•As Rubinstein: slower decisions are associated to increased cognitive
processing. Together, cognitive processing and emotional activation (for
example due to moral dilemmas) can help us gain a better understanding
of reaction times in decision.
•The novelty of this with connection to Rubinstein’ s work is the clear link
between arousal and response times.
Decisions causing a higher excitement are those taking more time to
be made!
General conclusions
• People have home-grown values which can be
captured by abstract laboratory settings
• We can obtain even precise values of the
psychological costs associated to ethical
values
• The physio-lab can provide us with objective
somatic reactions to decisions involving
ethical conflicts
• Time responses may offer a low-cost
substitute for SCR-based emotional arousal
data
Comments welcome!