Evolution, Bounded Rationality and Institutions

This dissertation consists of five self-contained research papers that cover theoretical work, simulation-based research, and experimental studies. My research interests are mainly focused on two interrelated areas within economics. One area is concerned with the economic consequences as well as the foundations of boundedly rational behavior. The other area is more specific and concerns the design of institutions and how they can be used to shape behavior and align incentives. The first chapter belongs to both areas, Chapters 2 and 3 cover topics from the former area, whereas the last two chapters contribute to the latter area. Chapter 1 concerns the role of trader matching with regard to the selection of market institutions by boundedly rational traders. Chapter 2 presents results on the stability of the Cournot-Nash and the Walrasian equilibrium under imitative behavior. Chapter 3 presents a model linking response times and iterative thinking and provides experimental evidence regarding the underlying processes of iterative thinking. Chapter 4 investigates the effects of a leniency mechanism on collusive bribery and tax evasion. Chapter 5 asks how the timing of punishment and the timing of the resolution of uncertainty affect deterrence of illicit behavior. In the remainder of this section I present a brief introduction for each chapter and summarize the main findings

The role of international anti-corruption regulations in promoting socially responsible practices.

We analyze how international anti-corruption rules impact the behavior of multinational firms in promoting sustainable practices. Competition from multinational firms is expected to lower bribe rents and hence corruption in host countries. However, we argue that the competition between domestic and multinational firms is unequal as (only) the latter face greater monitoring and sanction through international anti-corruption regulations. We develop a game theoretic model of bribing to examine the strategic response of firms under conditions of unequal competition. We show that under certain conditions the bribing probability of domestic firms increases when multinational firms facing greater penalties refrain from bribing. We use an agent-based simulation to analyze industries with heterogeneous firms, showing that the optimal strategies converge to the Nash equilibrium, and identify the major drivers of profitability and bribing

Detection and Deterrence in the Economics of Corruption: a Game Theoretic Analysis and some Experimental Evidence

This thesis contributes to our understanding of corruption deterrence for a specific class of game-theoretic corruption models, in which we assume that inspection of corrupt be- haviour happens through randomisation. Three models are explored theoretically and one experimentally. All models are three-player variations of the inspection game, and their typically unusual insights result from mixed-strategy equilibrium solutions. The first model examines an inspection game between an inspector and two potentially col- laborating offenders (a corrupt client and an official). Strikingly, its comparative statics suggest that higher penalties on corrupt clients increase the probability of corruption in the mixed equilibrium. The second model compares two states of the world, one where corrupt officials merely reject bribes (if they do not accept them), and one where corrupt officials report bribes (the latter leading to definite punishment of clients). The surprising result here is that, when officials prefer to report bribes (instead of merely rejecting them), the probability of corruption is again higher in equilibrium. The third model takes into account three different types of officials, a reporting type, a rejecting type, and a corruptible type. Its results show that e.g. an increase in the proportion of the reporting type increases the probability of corruption. To compare our theoretical results with data, we test a simple version of this game in the laboratory. Results of this pilot experiment were mixed, suggesting that three-player mixed-equilibrium behaviour is only in part and only qualitatively true on the aggregate, but not quantitatively or for individual play. An epilogue describes developments of a new, much improved experimental design and software, intended for future experiments

A study of corruption using the Institutional Analysis and Development framework with an application to the bidding phase of infrastructure procurement

Infrastructure projects are particularly vulnerable to corruption due to the complexity of processes and relationships between private and public entities, and the large-value contracts involved. Corrupt agreements can affect any phase of an infrastructure project, and the outcomes include reduced competition, poor-quality construction or infrastructure that does not meet value-for-money criteria. This PhD thesis brings together insights from economics, sociology and psychology to develop a broad framework of corruption with the focus on individuals, their actions and the settings in which corruption occurs. This framework is then applied to the bidding phase of physical infrastructure procurement. The method used to consolidate and analyse disparate theories and models of corruption across different disciplines is Elinor Ostrom’s Institutional Analysis and Development framework. Key variables of the corruption phenomenon are identified and organised using the IAD framework, and two models are developed. The first is a game-theoretic model analysing the importance of social networks and trust between corrupt partners and the intermediaries who facilitate corrupt exchanges. The second is a simulation model of decision-making processes in corrupt agreements based on a conflict of social norms and individual self-interest. The second model proposes a method of linking legitimacy of institutions, group behaviour status quo, and social network connections, with selfseeking behaviour. Case studies are then developed based on documents filed to support prosecutions under the US Foreign Corrupt Practices Act 1977. The proposed methods of corruption reduction are based on organisational controls and collectiveaction methods

Cartels as Rational Business Strategy: Crime Pays

This article is the first to analyze whether cartel sanctions are optimal. The conventional wisdom is that the current level of sanctions is adequate or excessive. The article demonstrates, however, that the combined level of current United States cartel sanctions is only 9% to 21% as large as it should be to protect potential victims of cartelization optimally. Consequently, the average level of United States anti-cartel sanctions should be approximately quintupled. The United States imposes a diverse arsenal of sanctions against collusion: criminal fines and restitution payments for the firms involved and prison, house arrest and fines for the corporate officials involved. Both direct and indirect victims can sue for mandatory treble damages and attorney\u27s fees. This multiplicity of sanctions has helped give rise to the strongly held - but until now never seriously examined - conventional wisdom in the antitrust field that these sanctions are not just adequate to deter collusion, but that they are excessive. We analyze this issue using the standard optimal deterrence approach. This model is predicated upon the belief that corporations and individuals contemplating illegal collusion will be deterred only if expected rewards are less than expected costs, adjusted by the probability the illegal activity will be detected and sanctioned. To undertake this analysis we first calculate the expected rewards from cartelization using a new and unique database containing 75 cartel cases. We survey the literature to ascertain the probability cartels are detected and the probability detected cartels are sanctioned. We calculate the size of the sanctions involved for each case in our sample. These include corporate fines, individual fines, payouts in private damage actions, and the equivalent value (or disvalue) of imprisonment or house arrest for the individuals convicted. Our analysis shows that, overall, United States\u27 cartel sanctions are only 9% to 21% as large as they should be to protect potential victims of cartelization optimally. This means that, despite the existing sanctions, collusion remains a rational business strategy. Cartelization is a crime that on average pays. In fact, it pays very well. Accordingly, our concluding section suggests specific ways cartel sanctions should be increased to become more nearly optimal. This should save consumers many billions of dollars each year

Cartels as Rational Business Strategy: Crime Pays

This article is the first to analyze whether cartel sanctions are optimal. The conventional wisdom is that the current level of sanctions is adequate or excessive. The article demonstrates, however, that the combined level of current United States cartel sanctions is only 9% to 21% as large as it should be to protect potential victims of cartelization optimally. Consequently, the average level of United States anti-cartel sanctions should be approximately quintupled. The United States imposes a diverse arsenal of sanctions against collusion: criminal fines and restitution payments for the firms involved and prison, house arrest and fines for the corporate officials involved. Both direct and indirect victims can sue for mandatory treble damages and attorney\u27s fees. This multiplicity of sanctions has helped give rise to the strongly held - but until now never seriously examined - conventional wisdom in the antitrust field that these sanctions are not just adequate to deter collusion, but that they are excessive. We analyze this issue using the standard optimal deterrence approach. This model is predicated upon the belief that corporations and individuals contemplating illegal collusion will be deterred only if expected rewards are less than expected costs, adjusted by the probability the illegal activity will be detected and sanctioned. To undertake this analysis we first calculate the expected rewards from cartelization using a new and unique database containing 75 cartel cases. We survey the literature to ascertain the probability cartels are detected and the probability detected cartels are sanctioned. We calculate the size of the sanctions involved for each case in our sample. These include corporate fines, individual fines, payouts in private damage actions, and the equivalent value (or disvalue) of imprisonment or house arrest for the individuals convicted. Our analysis shows that, overall, United States\u27 cartel sanctions are only 9% to 21% as large as they should be to protect potential victims of cartelization optimally. This means that, despite the existing sanctions, collusion remains a rational business strategy. Cartelization is a crime that on average pays. In fact, it pays very well. Accordingly, our concluding section suggests specific ways cartel sanctions should be increased to become more nearly optimal. This should save consumers many billions of dollars each year

Mapping and Modeling Illicit and Clandestine Drivers of Land Use Change: Urban Expansion in Mexico City and Deforestation in Central America

abstract: Anthropogenic land use has irrevocably transformed the natural systems on which humankind relies. Understanding where, why, and how social and economic processes drive globally-important land-use changes, from deforestation to urbanization, has advanced substantially. Illicit and clandestine activities--behavior that is intentionally secret because it breaks formal laws or violates informal norms--are poorly understood, however, despite the recognition of their significant role in land change. This dissertation fills this lacuna by studying illicit and clandestine activity and quantifying its influence on land-use patterns through examining informal urbanization in Mexico City and deforestation Central America. The first chapter introduces the topic, presenting a framework to examine illicit transactions in land systems. The second chapter uses data from interviews with actors involved with land development in Mexico City, demonstrating how economic and political payoffs explain the persistence of four types of informal urban expansion. The third chapter examines how electoral politics influence informal urban expansion and land titling in Mexico City using panel regression. Results show land title distribution increases just before elections, and more titles are extended to loyal voters of the dominant party in power. Urban expansion increases with electoral competition in local elections for borough chiefs and legislators. The fourth chapter tests and confirms the hypothesis that narcotrafficking has a causal effect on forest loss in Central America from 2001-2016 using two proxies of narcoactivity: drug seizures and events from media reports. The fifth chapter explores the spatial signature and pattern of informal urban development. It uses a typology of urban informality identified in chapter two to hypothesize and demonstrate distinct urban expansion patterns from satellite imagery. The sixth and final chapter summarizes the role of illicit and clandestine activity in shaping deforestation and urban expansion through illegal economies, electoral politics, and other informal transactions. Measures of illicit and clandestine activity should--and could--be incorporated into land change models to account for a wider range of relevant causes. This dissertation shines a new light on the previously hidden processes behind ever-easier to detect land-use patterns as earth observing satellites increase spatial and temporal resolution.Dissertation/ThesisDoctoral Dissertation Geography 201

Making Moral Judgments

This fascinating new book examines diversity in moral judgements, drawing on recent work in social, personality, and evolutionary psychology, reviewing the factors that influence the moral judgments people make. Why do reasonable people so often disagree when drawing distinctions between what is morally right and wrong? Even when individuals agree in their moral pronouncements, they may employ different standards, different comparative processes, or entirely disparate criteria in their judgments. Examining the sources of this variety, the author expertly explores morality using ethics position theory, alongside other theoretical perspectives in moral psychology, and shows how it can relate to contemporary social issues from abortion to premarital sex to human rights. Also featuring a chapter on applied contexts, using the theory of ethics positions to gain insights into the moral choices and actions of individuals, groups, and organizations in educational, research, political, medical, and business settings, the book offers answers that apply across individuals, communities, and cultures. Investigating the relationship between people’s personal moral philosophies and their ethical thoughts, emotions, and actions, this is fascinating reading for students and academics from psychology and philosophy and anyone interested in morality and ethics

Relationships Between Transformational Leadership and Organizational Citizenship Behavior in Ghanaian Organizations

The recent global financial crisis prompted organizations to search for effective ways to minimize loss of revenue due to settlement of organizational scandals. Transformational leadership and organizational citizenship behavior (OCB) are known to affect employees and subsequently organizational productivity. However, little is known about the relationship between transformational leadership and the OCB of employees of multinational corporations (MNCs) in Ghana. The purpose of this quantitative study was to bridge the gap in knowledge by examining the relationships between transformational leadership and the OCB of employees of MNCs in Ghana. The theoretical frameworks for this study were Bass\u27 transformational leadership theory and Organ\u27s OCB theory. A random sample of 180 employees, who had worked with MNCs in Ghana for at least 5 years, were surveyed on transformational leadership using a 40-item transformational leadership scale and OCB using a 24-item OCB scale. A correlation coefficient test and a regression analysis revealed statistically no significant correlational relationship between transformational leadership and OCB, and statistically no significant multiple regression relation between the4 dimensions of transformational leadership and OCB. The implication for social change includes importance to theory, business managers, and the society, that there is no relationship between transformational leadership and OCB of employees in MNCs in Ghana. Apprising individuals of this lack of relationship would inspire future researchers to search for other types of ethical leadership or non-financial incentives that could influence positive behavior of employees to enhance the organization\u27s productivity, and produce ethical citizens for society