Corruptions

Question 1

How does Fisman (2001) estimate the value of political connections in Indonesia?

Answer 1

Share prices of politically connected firms in Indonesia dropped when President Suharto’s health worsened.

• share prices of politically connected firms dropped sharply, while unconnected firms were unaffected.
• a 10% drop in Suharto’s health-related stock index led to an average 2% drop in the market value of connected firms.

Suggesting privileged access, favouritism, or corruption in how resources or regulations are allocated.

Question 2

What does Olken (2009) find about the mechanics of corruption in Indonesian trucking?

Answer 2

• 304 trucking trips
• truckers pay an average of 13% of trip costs in bribes, often more than their wages.
• fewer checkpoints led to higher bribes per stop, showing how corruption adjusts and behaves like a market with price discrimination and monopoly logic.

Key insight: corruption acts like a market—officials at checkpoints behave like monopolists, charging higher bribes at strategic locations (e.g. near destinations or where cargo is more valuable).

Question 3

What is the key result of Fisman and Miguel’s (2007) diplomatic parking ticket study?

Answer 3

Until late 2002, diplomats had diplomatic immunity and could ignore tickets without consequences.

Findings:

• High-corruption countries (e.g. Nigeria, Sudan): hundreds of unpaid tickets
• Low-corruption countries (e.g. Sweden, Norway): almost none

No enforcement = culture-driven behavior (reflects personal norms and internalized standards, not fear of punishment)

After 2002 enforcement reform (diplomatic status suspended after 3 unpaid tickets), violations dropped by 98%, showing institutions matter too.

Question 4

What are the main types of corruption described by Shleifer and Vishny (1993)?

Answer 4

Corruption with theft: bribes replace government revenue (e.g. license sold illegally) – hard to detect. (graph)

Corruption without theft: bribes are paid in addition to official fees – easier to detect. (graph)

They also show that centralised corruption (one bribe for access) is less damaging than decentralised corruption (multiple bribes to different officials), due to lower uncertainty and fewer delays.

Question 5

How to fix corruption with/without theft?

Answer 5

Without:
Erode monopoly rents of bureaucrat by introducing competition among bureaucrats/officers. Erode monopoly rents
With:
Create an accounting system that tracks licenses being issued.

Question 6

What is double marginalisation, and how does it relate to corruption?

Answer 6

When many uncoordinated officials (e.g. police, military, weigh station officers) each demand bribes along a route—like in Olken (2009)’s trucking study in Aceh.

Question 7

What is Becker and Stigler’s (1974) economic model of corruption?

Answer 7

Rational cost-benefit decision made by officials. A bureaucrat chooses whether to accept a bribe by weighing:
- The benefit of taking the bribe
- Against the expected cost = (probability of getting caught) × (severity of punishment)

Corruption decreases when:
- Law enforcement is stronger (higher chance of being caught)
- Punishments are harsher (greater cost if caught)
- Salaries are higher (raising the opportunity cost of losing the job)