Wednesday, August 21, 2013

Corruption Is Higher Than Perceived

From a recent World Bank policy research working paper (abstract):

Misunderestimating corruption
Kraay, Aart; Kraay, Aart; Murrell, Peter

Summary: Estimates of the extent of corruption rely largely on self-reports of individuals, business managers, and government officials. Yet it is well known that survey respondents are reticent to tell the truth about activities to which social and legal stigma are attached, implying a downward bias in survey-based estimates of corruption. This paper develops a method to estimate the prevalence of reticent behavior, in order to isolate rates of corruption that fully reflect respondent reticence in answering sensitive questions. The method is based on a statistical model of how respondents behave when answering a combination of conventional and random-response survey questions. The responses to these different types of questions reflect three probabilities -- that the respondent has done the sensitive act in question, that the respondent exhibits reticence in answering sensitive questions, and that a reticent respondent is not candid in answering any specific sensitive question. These probabilities can be estimated using a method-of-moments estimator. Evidence from the 2010 World Bank Enterprise survey in Peru suggests reticence-adjusted estimates of corruption that are roughly twice as large as indicated by responses to standard questions. Reticence-adjusted estimates of corruption are also substantially higher in a set of ten Asian countries covered in the Gallup World Poll.

The measures of corruption that are currently available (Transparency International’s Corruption Perception Index and the World Bank’s Control of Corruption indicator) are sparse, and rely almost entirely on the honesty of the survey respondents. If in fact respondents are not truthful (i.e. they have something to hide), the incidence of “real” corruption would be higher than revealed by the survey.

This wouldn’t matter if the degree of reticence or “guilt” is the same in all countries. But if “guilt” weren’t the same then survey estimates would be biased, and cross-country comparisons made meaningless. This new research paper explicitly models the degree of “guilt” and applies it to survey data for certain countries, and adjusts the survey estimates to arrive at what is essentially an absolute value for the incidence of corruption.

Malaysia, incidentally, is one of the countries they’ve applied the methodology to, and in fact commented on (excerpt, pg.15; the figure referred to is on pg.30):

Figure 5 illustrates the consequences of reticent behavior for estimates of the prevalence of corruption for the full set of 10 countries included in our analysis. The top panel compares naïve and reticence-adjusted estimates of guilt. Consider for example the comparison of Indonesia and Malaysia, which have similar naive estimates of the prevalence of corruption of 7% and 9% respectively. However, our estimates suggest that effective reticence is much more common in Malaysia (44%) than it is in Indonesia (21%). As a result, our reticence-adjusted estimates of corruption increase much more in Malaysia (to 15%) than they do in Indonesia (to 9%). Note also that the corruption ranking of six of the ten countries differs between the naïve and the estimated rates of guilt. Overall, our estimates from the GWP show that reticent behavior is likely to lead to substantial downward biases in estimates of corruption based on CQs, and moreover that the size of these biases can differ non-trivially across countries.

Two takeaways here:

  1. The level of corruption is likely higher than captured by current surveys;
  2. As against that, we’d need estimates on the rate of reticence across the globe to get a full picture of our ranking, as individual country bias will be substantially different.

One potential problem is that the paper presumes reticence as evidence of "guilt" (i.e. personal involvement in corruption), which might be problematical when applied to perception surveys such as Transparency International’s. Nevertheless, this is a promising start towards getting better measures of corruption than we currently have.

Technical Notes

Kraay, Aart & Peter Murrell, "Misunderestimating corruption", World Bank Policy Research working paper no. WPS 6488, May 2013

6 comments:

  1. So base on this report corruptuon may be higher? looking at the attitude of many pessimistic Malaysians, it could be lower, I have Malaysians in my class in Australia who told his Australian coursemate how Malaysia has no rule of law and that the Employment Provident Fund is being pillaged by the Malay govt unlike the so called well run Australian Superfunds.

    One wonders if the Malaysian respondents to the Trasparency International may overblown the perception of corruption in Malaysia.

    To digress, seems there is alot of worry on the Thai economic recesssion, seems the market think its a repeat of the Asian Financial Crisis which started at Thailamd, any thoughts?

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    Replies
    1. DBKL, a bigger robber?August 25, 2013 at 5:53 PM

      "I have Malaysians in my class in Australia who told his Australian coursemate how Malaysia has no rule of law and that the Employment Provident Fund is being pillaged by the Malay govt unlike the so called well run Australian Superfunds."

      Indeed corruption is lower in Malaysia. Your Malaysian coursemates are likely to be Chinese migrants who have biased opinions of the Malay civil service and the Malay govt. They bad mouth the Malay Govt so that is why the actual corruption is lower.

      What beset Malaysians actually is not corruption but biased and inflated policies. Malays are very rule abiding people. If the ISO says so and so, they will definitely obey to the letter.

      But then it is at the policy level where the contractors are decided at policy level that is the problem. As an example the Education Minister announced transparently and in all newspapers that YTL technology and the Frog software that they bought the rights from a UK company will be used in the blueprint.

      See there is nothing hidden here. Everything is transparent. In Malaysia its all transparent and black and white and who is to blame if no one bother to question the Frog software with its FROG culture to the Malay community? Who is to blame if the Malays continue to elect Muhyidin to power?

      He obviously like YTL and their frogs and their networks to the tune of 9 billions.

      And recently the mayor of Kuala Lumpur,Ahmad Fuad Ismail announced in the papers he is buying 1200 cameras for RM200 million. Its all in the papers. He probably had a supplier in mind but if everything is done according to the book where is the crime? The more important question is why RM200,000 for one camera? Why the need to install cctv when a uk study shows the doubtful benefit of crime prevention? Obviously this policy is to enrich some camera supplier but is that a crime?

      At RM200 million, DBKL is probably a bigger robber of the tax payer than any ATM robber can hope to be muahahaha...

      So corruption under the table is relatively low though an ex Bank Negara governor was reportedly caught with 150,000 cash in in his table haha..

      So in Malaysia its fighting inertia and laziness and exposing faulty reasonings by greedy ministers that is more the problem.

      Delete
  2. Anonymous,

    Please think a bit more, who cause the problem currently in the financial World ......

    Is it the Thai, Indonesian or even Malaysia??? Where did the money come from???

    Now where is the money going???

    Whose money are those???

    So was it or is it Thai, Indonesia or Malaysia problem???

    And the EPF, here is link to EPF annual reports: http://www.kwsp.gov.my/portal/en/about-epf/annual-report

    Please check it up, it is comprenhsive where our money went to give the dividend of about 6+% annually recently, look and there is answer not "being pillage by the malay - heh it is Malaysian (please keep race out of this) Government. And it is one very well run Authority just like the Australian Superfunds!!!!

    Zuo De

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  3. Not being racist but that was the context of the idea,some Malaysians just say bad things about their country abroad,considering these are students doing critical courses, one wonders what the business reps tell the Transparency Index surveys. I mean at our workeplace our customer orders are almost at full capacity yet we have smart engineers in my dept who is still convinced our country is bankrupt. Malaysian perception is quite complicated.

    Anyway,the Age had a writer who commented that Malaysian citizens have positive outlook on the economy because of afirmative action,seems anything good on Malaysia will always be cast in doubt.

    I found this blog after doing some self study in Malaysian corruption some days ago and his nexus on corruption articles was enlightening.

    I am quite fascinaterby the corruption perception, our dropping CPI index has not made us any worser than our neighbors,basic effects if compound growth just grow our economy not CPI which is just perception.

    So rather than join the malaysia is doom club,i think ill find out about it myself, this blog is my pot of gold at the end of the rainbow,wish i can scramble the economic data for self study as i work with statistics but for manufacturing process application though.im no economist but will try to learn more

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  4. Paul Krugman article http://www.nytimes.com/2013/08/23/opinion/krugman-this-age-of-bubbles.html?hp&_r=0

    sum up my feeling on the currency woes now experienced by "emerging" market.

    And yes, there are Malaysian who thinking that Malaysia is going to bankrupt despite house price going up, and all the signs that the show otherwise.

    Yes this blog is a pot of gold and keep up the good work, Hishamh, i too learn a lot, sorry i mis-read your comment, anony.

    Zuo De

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  5. Based on my experience working with the Government, the so call Corruption is likely done by their officers or Ministers (Not to say all are clean, there still bad apple in the system). Most of the high contract value or exorbitant price paid for an item is due to current procurement system that needs to be reviewed. To make things worse, the officer handling procurement at ministries and agencies level is not that competent (so the incompetence lead to chances of manipulation by contractors/consultants. Actually none of the Gov officer benefit from it, but they got the blame).

    Not to mention failure of some state JKR (or related agency) office to monitor closely the implementation of Government projects. Hence, making the actual price paid for the contract increase unnecessarily (due to EOT, VO etc).

    Nevertheless, improvement is coming in near future given Gov officer spend more time analyzing the weaknesses and discussion with industries. The last 5 years, most of the Gov officer spent more times drafting answers for Parliament Question, thinking how to rebut silly allegation by opposition etc rather than doing their actual task.

    ReplyDelete