The organization of anticorruption: Getting incentives right!

Governments and private firms try to contain corruption among their staff mostly in a top-down, rules-based approach. They limit discretion, increase monitoring or impose harsher penalties. Principles-based, bottom-up approaches to anticorruption, instead, emphasize the importance of value systems and employee's intrinsic motivation. This embraces the invigorating of social control systems, encouraging whistle-blowing, coding of good practice and alerting to red flags. This paper investigates how some top-down measures run counter to bottom-up contributions. Examples range from penalties imposed with zero-tolerance, debarment or the nullity of contracts. While top-down elements are indispensable for containing corruption they must be designed well in order to avoid discouraging the bottom-up endeavors. --Corruption,whistle-blowing,contract penalties,debarment,nullity

Between two evils: Investors prefer grand corruption!

Recent empirical studies claim that, in addition to levels of corruption, investors are deterred by its unpredictability. I claim instead that it is petty corruption that deters investors. I employ seven subcomponents of corruption for a sample of 102 countries that appear in the 2003 Global Competitiveness Report of the WEF. The second principal component of this data depicts a grand, political type, embracing corruption in government policymaking and in judicial decisions as opposed to corruption in public utilities and loan applications. Grand corruption less deters investors because they might feel belonging to an inner circle of insiders that can profit from hidden arrangements. Grand corruption also entails relatively smaller organizational effort. --Grand Corruption,Petty Corruption,Extortion,Predictability,Opportunism,Public Utilities,Laws and Policies,Judiciary

Consequences and causes of corruption: What do we know from a cross-section of countries?

Data on the perceived levels of corruption from a cross-section of countries has been introduced fruitfully into recent empirical research. This chapter reviews studies on the consequences and causes of corruption. It includes research on the impact of corruption on investment, GDP, institutional quality, government expenditure, poverty, international flows of capital, goods and aid. Causes of corruption focus on absence of competition, policy distortions, political systems, public salaries as well as an examination of colonialism, gender and other cultural dimensions. --

Determining trends for perceived levels of corruption

The Transparency International Corruption Perceptions Index is a composite index with a focus on cross-section information. The usage of the data in the form of time series has been discouraged in the past, due to changes in the composition of sources. Basing assessments only on sources that continuously enter the index, such time series are provided here, ranging from 1995 to 2005. Panel data regressions reveal how the sources' time series information is related to each other, suggesting a method for assembling panel data. Regressing a linear time trend on the standardized sources provides an assessment of the significance of a simple trend for each of 61 countries. --

Deterrence and constrained enforcement: Alternative regimes to deal with bribery

This study embeds transaction cost analysis into a Law and Economics model to produce general recommendations on how to deter bribery. Governments may deter bribery either by high penalties and risks of detection, potentially supported by leniency given to those who report their infraction (deterrence regime). Another local optimum is achieved if the government amplifies the risk of opportunism, aggravating the difficulties of enforcing a bribe transaction. This involves a low probability of detection and allowing offenders to keep their ill-gotten gains. If bribes are paid upfront bribe taking will face only mild punishment (constrained enforcement regime). --Bribery,Corruption,Leniency,Enforcement,Deterrence,Opportunism,Reporting,Whistle-blowing,Nullity

The puzzle with increasing money demand: Evidence from a cross-section of countries

The ratio of money demand to GDP may increase with portfolio demand, monetization, and a deeper division of labor. Using a cross-section approach to money demand for 126 countries this study shows that the share of agriculture, life expectancy at birth, openness, and trust in the banking system capture a good deal of these influences. Once these variables are included, GNP per head negatively impacts on the ratio of money demand to GDP, which is in line with the standard result by Tobin and Baumol. --

Fairness in sovereign debt restructuring

Experience from events of sovereign debt restructuring over the last decade exemplifies that the prevailing process is mainly shaped by exchange-offer launched by the debtor. This suggests that negotiations for changing the repayment terms of the debt take place in an Ultimatum Game which centres virtually the whole bargaining power on the debtor side. Creditors vote according to reservations values that might be influenced by fairness consideration both vis-à-vis the debtor and their fellow creditors. And as fairness is usually a highly subjective influence this can result heterogeneity of reservation values which might impede effective intra-creditor coordination for the benefit of the debtor. --

There is no bank lending channel!

The bank lending channel (BLC) has found entrance into standard economic textbooks. But the approach, as presented by Bernanke and Blinder [1988] operates with lopsided loan demand, money demand and money supply functions. This invalidates the idea that potential changes in the supply of loans may impact on aggregate demand for goods and services. Above, a reduction of loans may restrict an individual investors, but the macroeconomic logic of the IS curve suggests that such a constraint is not binding. --

Let them take gifts, and cheat those who seek influence

Corrupt arrangements are characterized by a high risk of opportunism. Moreover, denunciation and extortion add another layer of uncertainty for participants in corrupt transactions. This paper demonstrates how legislators can use an asymmetric design of criminal sanctions to amplify these inherent risks, thereby destabilizing corrupt arrangements. It is also shown that asymmetric penalties do not necessarily interfere with the goal of deterrence and that immunity may be a useful tool to disband the pact of silence characteristic of corrupt arrangements. --Corruption,Asymmetric Sanctions,Destabilization,Opportunism,Denunciation,Immunity