All for One and One for All! How Do Corruption Investigations Affect Municipalities’ Public Procurement Choices?

Marion Chabrost (Paris School of Economics )
Stephane Saussier (Sorbonne Business School)

Abstract : Using data on public procurement, we assess the impact of opening a public investigation into French municipalities’ choice of award procedures. We observe that municipalities that are suspected of being corrupt do not change their practices. We argue that such municipalities have no interest in change as long as the investigation is pending. Conversely, our results indicate that neighboring municipalities do adapt their award procedures to reduce the probability of being identified as corrupt. We conclude that even if investigations rarely lead to convictions, they are nevertheless more efficient than might appear at first glance through their positive externalities in the form of disciplining potentially corrupt neighboring municipalities.

Crony Capitalism, the Party-state, and Political Boundaries of Corruption

Weijia Li (University of California, Berkeley)
Gerard Roland (University of California, Berkeley)
Yang Xie (University of California, Riverside)

Abstract : What is the connection between crony capitalism, corruption, and the state apparatus in an autocracy? How much does corruption help the economy and when does it undermine state power? We investigate those questions by building a model that, instead of looking at the state as a black box, analyzes the link between various positions in the hierarchy of an autocratic state. The model is inspired by the party-state in China where crony capitalism and corruption play a central role in the economy. We show how the state's distortionary role in the economy encourages corruption between local officials and businesses, and how this corruption creates vertical corruption chains in the party-state hierarchy that threaten loss of political control by the Center over the hierarchy. We show the trade-off between the incentive effects of corruption and the danger of loss of control, leading de facto to define boundaries of corruption. The response by the Center to too high corruption depends on the power distribution within the Center and the de facto dependence of central leaders on support by provincial officials. Our results are consistent with recent developments in China.

Statistical Capacity and Corrupt Bureaucracies

Manuel Oechslin (University of Lucerne)
Elias Steiner (University of Lucerne)

Abstract : In many developing countries, economic statistics (such as the growth rate of GDP) are highly imprecise--which makes it difficult to evaluate economic reforms and learn "what works". Improving economic statistics has thus become a top priority of development organizations. This paper, however, isolates a mechanism through which a push for better statistics can make matters worse. Precise statistics require the collection of data from a large number of firms. If firms suspect that sensitive information, when spreading through the bureaucracy, is misused to exact bribes, they have weaker incentives to invest. As a result, the effects of economic reforms are muted, making it even harder to detect "what works". To suppress this harmful mechanism, efforts to improve economic statistics should be accompanied by institutional measures such as the strengthening of the independence of the statistical office.