His recent work includes research on the economics of corruption and on the role of the Internet in public policy governance. Christopher Woodruff is an associate professor of economics in the Graduate School of International Affairs and Pacific Studies and Director of the Center for US-Mexican Studies at the University of California, San Diego.
Conceptual underpinnings
First, a public benefit may be scarce and officials may have discretion to award it to applicants. Aggregate supply can be scarce, as in the example above (for example, university places or government-subsidised apartments), or open (for example, driver's licences, business firm registration, certificates of occupancy for construction clouds).
Alternative approaches to understanding corruption
Companies in the telecommunications/IT, energy and construction industries are most likely to report that corruption is part of the business environment. The ratio of the two provides a rough measure of relative levels of corruption and inefficiency.
Conclusion
Rose-Ackerman, Susan (1999), Corruption and Government: Causes, Consequences and Reform, Cambridge, Storbritannien: Cambridge University Press. Rose-Ackerman, Susan (2004), 'Governance and corruption', i Bjørn Lomborg (red.), Global Crises, Global Solutions, Cambridge, UK: Cambridge University Press, pp.
CORRUPTION AND POOR GOVERNANCE AROUND
THE WORLD
The causes of corruption
Broadman and Recanatini (1999) show that for a sample of transition economies in Europe and Central Asia, higher barriers to market entry lead to higher corruption. 2002) are also concerned with the nature of input regulation. He finds that natural openness lowers a country's level of corruption, arguing that this result shows the helpful role of competition in reducing corruption.5 Residual openness (that is, the part not explained by country size and geography) is a the measure of a country's trade regime and its policy decisions in favor of global competition.
The consequences of corruption
Lambsdorffand Cornelius (2000) show that corruption has a negative effect on the ratio of foreign direct investment to GDP for African countries. They find that the impact of corruption on foreign direct investment is greater than that on local investment. I begin with a discussion of how corruption distorts budget allocation and then assess the impact of corruption on the quality of public services.
Reform proposals
Other studies show poor results regarding the impact of wages on corruption. 2001) and Manow (2005) investigate the relationship between average national wages and GDP per capita, taking into account a range of other influences. Nevertheless, Brunetti and Weder (2003) show that their findings survive the use of instruments and argue that a large proportion of causality flows from a free press to less corruption. 2000) use data on the daily average of newspapers per person. Ades and Di Tella (1996) suggest a link between corruption and the independence of the judicial system.
Outlook
However, a reduction in fixed capital (as caused by corruption) will have a negative impact on the level of GDP. The predictability indicator of corruption from the WB/UB survey is also included in the regressions. Tschoegl (1991), "The Impact of the Foreign Corrupt Practices Act on US Exports", Managerial and Decision Economics.
Updated governance indicators for 1996–2004
Several of our data sources are surveys of individuals or domestic companies who have first-hand knowledge of the state of governance in the country. Consequently, many small differences in governance scores between countries are unlikely to be statistically significant at reasonable confidence levels. We find that for large changes in governance in either direction, there is a reassuringly high level of agreement between our primary data sources for each country regarding the direction of change.
Interpreting di ff erences in governance across countries and over time In our description of the data in the previous section we emphasized the
That is, our estimate of the change in management will be zero regardless of the observed change in the data. Consequently, our best estimate of the change in management will be greater than the observed change in the data. How much confidence should we have in the statistical significance of the change in undetected driving based on the observed data.
Subjective and objective measures of governance
The next three columns report the implied standard deviation of the measurement error on the objective indicator, under three assumptions: (A) that our estimate of the standard deviation of the measurement error on the subjective indicator. For all indicators and for all three sets of assumptions, the implied standard deviation of the measurement error in the objective indicators is very high relative to the corresponding standard deviation of the subjective governance indicators. Assumptions (b) and (c) are designed to be more favorable to the precipitability of the objective indicators.
Interpreting governance–income correlations
Then the correlation of the error term with per capita income must be equal to the observed correlation in the data. This example illustrates how the importance of halo effects in accounting for the observed correlation between governance and per capita income depends both on the strength of the halo effect itself and on the relative importance of measurement error in the governance indicator. If the proportion of variance in management due to measurement error is one, then the halo effect correlation should be 0.8.
Conclusions
The third column reports the correlation of change over time in management estimates under the two models. On average, eight of the nine changes identified by the rule of thumb are also significant in the dynamic model. Equation (2.5) then gives the conditional mean and variance of the level of government in the two periods based on this one source.
The meanings and measurements of institutions
There is clearly something that remains uncaptured in the picture of the institutional environment drawn by the hard goals of constitutional design. The description of this index in the Polity IV manual indicates that it measures the independence of the legislature and judiciary from executive control. In practice, this may be less problematic when the measure focuses on the independence of the judiciary.
Consistency across sources
The formal goals of political institutions clearly measure something quite different from the goals of broad institutions. Here there is a clear distinction between the impressionistic goals of legal and regulatory quality on the one hand and the Doing Business goals on the other. Correlations with the Doing Business measures of legal and regulatory effectiveness range from 0.16 to 0.43.
What do we know about which institutions matter?
Impressionistic measures of broader institutions and legal/regulatory institutions are strongly correlated with each other and with settler mortality and distance from the equator. The second is that their measures of broad property rights measure both formal constitutional differences and informal institutional differences, whereas legal formalism is more a measure of formal institutions. The strongest results come from their measures of district size (it's better to have districts with more seats) and the use of party lists (fewer is better).
Conclusions
Acemoglu, Daron (2005), 'Constitutions, politics and economics; a review essay on Persson and Tabellini's The Economic Effects of Constitutions', Journal of Economic Literature. Di Tella, Rafael and Ernesto Schargrodsky (2003), “The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires,” Journal of Law and Economics. Laeven, Luc and Christopher Woodruff (2005), “The quality of the legal system, Firm Ownership, and Firm Size,” working paper, University of California, San Diego.
CORRUPTION AND INSTITUTIONAL
STRUCTURE
Theoretical framework
In this highly stylized framework, it immediately follows that the time firms spend on bureaucratic hassles is an increasing function of the level of bribes paid, Bf, since each is a positive function of the number of rules the firm wishes to circumvent: . Because we are also interested in the effect of the bribery transaction on financial performance, we also define a few variables that relate to the firm's growth level. Second, to preserve information about how much sales are expected to change, we consider a log transformation of the following form:
Results
This variable was introduced in the literature by La Porta et al. 1998) and includes three indicators that classify the legal origin of the law of commercial companies or the commercial code of each country.5 The three classifications of legal inheritance are English (common law), French (civil law) and socialist. The size and significance of the interaction effect are robust to including controls for firm size and sector of activity schemes (Table 4.2, columns 3 and 4). The overall correlation between uncertainty and time spent with officials is negative, which is surprising in light of our description of the bribe negotiation process.
Conclusions and role for future research
The views expressed here are those of the authors and do not necessarily reflect the views of the World Bank or its member countries. Note that APDY is coded from 1 (always know the amount to pay) to 6 (never know), so higher values of the variable indicate greater uncertainty. This interpretation has been criticized for giving an overly simplistic account of the differences between legal regimes.
Varieties of corruption
Yet we can think of other forms of particularism that move closer to the corrupt side of the spectrum, from 'protection' (providing material support, at any time during the electoral cycle, to individuals or communities in exchange for political support) to outright 'vote buying' (offering special material rewards to individuals or families at election time, see Schaffer forthcoming). Once in office, politicians may engage in corrupt rent-seeking, which amounts to the abuse of public office for private material gain. But before we can draw this connection, attention must be directed to the democratic institutions themselves and to the channels through which these institutions can influence economic and political outcomes.
Design of democratic institutions
The pioneering work of George Tsebelis argued that the number of veto players in a system is a function of particular institutional characteristics (separately elected president, federalism, bicameralism) as well as the number of parties. Tsebelis focused on policy change as a dependent variable and argued that as the number of veto players increases, so should policy stability. Note that one of the main differences between plurality and PR systems is constituency size, which refers to the number of candidates elected in an area.
Institutions as incentives for and constraints on corruption: theoretical perspectives
Drawing on the 'personal voice' literature (Carey and Shugart 1995), they argue that in those systems where there are incentives to cultivate personal voice, candidates need more individual campaign funds to announce their candidacy. Allen Hicken (forthcoming) concentrates on vote buying as the interest phenomenon, but draws on the same ideas of personal vote as Golden and Chang to understand the institutional incentives. Beyond the impact of electoral rules, there is little theoretical literature on the relationship between electoral corruption and other institutions.
Empirical regularities
Of course, perhaps the most serious problem for testing theories of the impact of institutions on types of corruption is that the measures rarely allow one to distinguish between different types of corruption. It is difficult to say anything definitive empirically about the difference between CLPR and OLPR, mainly due to the scarcity of OLPR cases. A step in this direction is new work by Erik Herron and Paul Johnson, who try to understand the effect of the 'special polling stations' on vote theft in Ukraine's 2002 parliamentary elections.
Unanswered questions
Alvarez and Fernando Limongi (2000), Democracy and Development: Political Institutions and Well-Being in the World New York: Cambridge University Press. Rose-Ackerman, Susan (1999), Corruption and Government: Causes, Consequences and Reform, Cambridge and New York: Cambridge University Press. Carey (1992), Presidents and Assemblies: Constitutional Design and Electoral Dynamics, Cambridge and New York: Cambridge University Press.