Readings 10/30 Corruption and Decentralized Targeting

[jhconning]

Let's transition from the last topic on Targeting and Decentralization to some readings on 'Corruption.' What follows are two empirical papers and a survey:

• Galasso, E., Ravallion, M., 2005. Decentralized targeting of an antipoverty program. Journal of Public economics 89, 705–727. link

• Pande, R., Olken, B., 2012. Corruption in Developing Countries. Annual Review of Economics 4, 479–509. link

• Olken, B.A., 2007. Monitoring Corruption: Evidence from a Field Experiment in Indonesia. Journal of Political Economy 115. link

The Galasso and Ravallion paper focuses on the empirical challenges of evaluating large anti-poverty programs when beneficiary selection is decentralized. It offers a broad theoretical framing and an empirical model and discussion of the issues. This will allow us to extend some of the discussion from last week we didn't quite get to, and segue nicely into the topic of corruption. The Pande and Olken is a survey paper focused on the empirical literature but with a short theory section. Finally, the Olken paper on a field experiment in Indonesia is an RCT that brings up some interesting issues.

Ana, who is also interested in these topics for her proposal, will prepare a summary.

[Emanuel-Agu]

Olken and Pande (2012). Corruption in developing countries

1. Regarding the efficiency consequences of corruption, I read that the authors suggest a trade-off that I would paraphrase as “part of salary income could come from bribery or taxation”. From this argument, I understand that they don’t take into account that the tax system could be modified to obtain the supplement in salary income that comes from bribery. For example, the tax system could be regressive, hampering the amount of public resources to pay for bureaucracy. In addition, we don’t have a measure of the participation of the state in the economy, for example, the weight of the public sector, measured by the role of social spending, the administration of the economic structure and prices.

2. Regarding the determination of the level of corruption, the probability of detection could also be endogenous to the level of corruption. I’m thinking that the higher the corruption level, the lower the “p” (or the possibility of enforcing controls). On the other hand, as found by Di Tella and Schargrodsky (2004), an increase in wages in public hospitals couldn’t lower input prices. Furthermore, leaving aside that empirical evidence is not clearly backuping the model, I’m not understanding how we can reach another equilibrium with a lower level of corruption.

[alexkmc33]

Galasso and Ravallion (2005)

1. In the intra-village model, I am not sure how to get the partial derivatives respect to G_i. Also, I cannot see how to get the marginal net gains in page 710. It seems it is from the FOC but since the problem seems to have 3 variables that are related with equation 2.2, I am wondering how the author substituted the values inside the optimization problem.

2. Inequality can be a reflection of political power in this paper. Political power can affect the weights given to the poor and this will have an effect on the dependent variable, targeting differential. But I think there might be endogeneity issue with the targeting differentials and inequality. If the targeting differential is large, meaning that the poor has power already, I think it will have an effect on inequality. I am wondering if the exogenous information test statistically rejects this endogeneity issue.

[VictorZhang0413]

Olken and Pande (2012). Corruption in developing countries

1) The most popular definition of corruption is that of Shleifer and Vishny (1993). Svensson (2005) defines corruption as "the abuse of public power for private gain". More recently, Banerjee et al. (2013) define corruption as "an official who breaks rules for private gain". The difference with the former is that the latter places more emphasis on "breaking the rules", thus avoiding subjective moral judgments and thus the discussion of cultural differences.

2)In studying corruption in China, some scholars have used enterprise survey data to provide objective estimates of the degree of corruption in provincial areas of China. For example, Cai et al. (2011) used enterprise survey data from the World Bank and the China Bureau of Statistics to find that "hospitality" (including food, drink, gifts, entertainment, membership cards, and travel expenses), a corporate financial indicator, can be used as a proxy for corporate corruption.

[jhconning]

Here is Ana's paper, focused on Olken and Galasso and Ravallion: