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«Key Words: corruption, corruptibility, experiments, experimental methodology This article draws heavily on Dusek, Ortmann & Lizal (2005) which it ...»

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If the bribee rejected the proposed deal, it did not materialize (and the briber got stuck with a small initiation fee). If the bribee accepted the proposed deal, it brought about (through the experimenter) a tripling of the briber’s initial investment. Next the bribee had to choose one of two decisions, with the first decision benefiting the briber significantly more than the bribee, and the second decision benefiting the bribee somewhat more than the briber. As in the moonlighting game, this baseline treatment did not feature welfare-reducing externalities imposed on a third party. The possibility for retribution was also not offered. Still, more trust and reciprocity emerged – and hence more corruption and corruptibility -- than standard game theory predicted.

To those that know the relevant experimental literature (e.g., Guererk, Irlenbusch & Rockenbach 2006), the reported results do not come as surprise.

The authors then tested experimentally the impact of externalities that impose a cost on a third party (the “negative externality” treatment), as well as the effects of a small probability of detection if they accepted the bribe (the “sudden death” treatment). These two “treatments” had the same game-theoretic prediction as the baseline “pure reciprocity” treatment. Namely, there should be no trust and there should be no reciprocity. All three treatments were conducted as 30 round “partners” treatments, meaning a subject was matched with one other person throughout.6 Technically, and for the game-theoretically uninitiated probably somewhat surprising, the game-theoretic prediction for these 30 rounds is the same as that of a one-shot game. Therefore, the game-theoretic prediction is that for a one-shot game rather than an (indefinitely) repeated game.

The results suggest that the behavior of bribers and bribees, maybe quite in line with intuition, is unaffected by the damage inflicted on a third party. (Here the third party was all the other participants in the experimental session, rather than some third party outside of the laboratory.) The threat of a drastic penalty (although extremely small in the experimental parameterization), decreased attempted bribes.

Abbink (2002) built on the bribery game in AIR (2002) but, rather than the third party being represented by all the other participants in the experimental session, the third party was now represented by additional subjects that performed a task (evaluating video clips) for which they were paid. Importantly, the wages these workers were given was either high or low relative to that of the public official, making the bribee (the public official) either better off or worse off (if he was not hit by sudden death). There was no treatment effect: whether the bribee received a relatively high or low wage did not affect significantly her or his reciprocity (to the giving of the briber). This observation is interesting in light of arguments -and empirical evidence (e.g., Van Rijckeghem & Weder 2001) -- which suggest that higher wages for public officials would make them more resistant to bribe offers.

Abbink (2004) built on the sudden-death treatment of AIR (2002) to study experimentally the corruption-reducing effects of staff rotation. Staff rotation is implemented by re-matching the participants in the experiment in each round (“strangers” treatment) rather than letting fixed pairs play all thirty interactions (“partners” treatment). The results are in line with intuition (but arguably contradicts earlier findings on partners/strangers treatments7) in that the number As opposed to a so-called strangers treatment which matches a players randomly, but quite possibly repeatedly, with all the other members in an experimental session.

Partners/strangers treatments were previously in public good experiments where the evidence, however, was rather mixed (see Andreoni & Croson 2004). An important question for future research is therefore: Why does Abbink (2004) find these very strong strangers effect in (asymmetric) principal-agent games that do not exist in (symmetric) public good experiments.

of offered transfers, i.e. bribery attempts, and their volume is cut by about half in the strangers treatment.

Frank & Schulze (2000) and Schulze & Frank (2003) conducted two experiments with members of a university student film club in Germany. Unlike in the experiments by Abbink and his collaborators, there was no reciprocal relationship between a bribee (the public official) and a briber who might choose to offer a bribe in order to induce the bribee to make a more favorable decision. Instead, a public official decided unilaterally how much money to “divert” from public funds, subject to the risk of being discovered and punished. Before watching a movie, each member was placed in the (fictitious) position of the manager of the club and presented with the following situation: The club needed to obtain some service from a private firm, and the manager had to choose a firm that would perform that service. Each subject was presented with offers from several firms, which differed in (a) the price that the film club would have to pay and (b) the side payment (bribe) from the firm to the manager that the manager would keep for himself. (The higher the price, the higher was the bribe.) For example, if the manager was honest (= would not take a bribe) the club would have to pay only DM20. If the manager was dishonest and, for example, took the maximum offered bribe of DM144, the club would have to pay DM200.

Participants indicated their secret choice on a form, the forms were collected, one of the forms was drawn, and the payoffs were made according to the subject’s choice on the form that was drawn. The club would receive DM200 minus the price chosen by the subject whose form was drawn, and that subject would receive the bribe that he opted for. Subjects were paid in private so that others could not observe the identity of the subject who may have harmed the club by his corrupt choice. Note that these experiments were unusual in that the public entity that would suffer from corruption was real: The experimenters could study corruption “as is” in the real world, while having other important variables under control.

The two key determinants of corruption investigated in these experiments were the officials’ wages and the probability of detection. One half of the subjects were given a fixed payoff in addition to the possible bribe. Comparing these two groups allowed testing the hypothesis that higher wages of public officials lead to less corruption by inducing loyalty. One half of the subjects (both with the positive “wage” and zero wage) were also told that if their sheet were drawn and they accepted bribes, their payoff from the experiment would be nullified with a known probability.

Frank & Schulze found that the relationship between officials’ wages and corruption is non-trivial: When there was no risk of punishment, giving subjects an additional fixed payoff did not significantly reduce their proclivity to behave corruptly. Thus there was no evidence of the loyalty effect of wages. When punishment was possible, subjects receiving also the fixed payoff did choose lower bribes, which is consistent with the deterrence effect of higher wages. The risk of punishment produced the expected result on the other end of the distribution: the share of subjects choosing the maximum possible bribe fell from 28.8% to 12.6% when risk of punishment was introduced. A surprising result of

this experiment was that the risk of punishment actually increased corruption:

9.4% of the population was honest when there was no risk of punishment while only 0.9% were honest when punishment was possible. Frank & Schulze hypothesized that the introduction of monetary incentives reduced the intrinsic incentives to behave honestly, which has been observed in different experimental contexts (e.g., Gneezy & Rusticchini 2000; see also Rydval & Ortmann 2004).

An experiment on leniency programs

The effect of whistle-blowing on illegal behavior has already been analyzed in the context of anti-trust policy theoretically (e.g., Berentsen, Bruegger & Loertscher 2003; Spagnolo 2004) and experimentally (Apesteguia, Dufwenberg & Selten [ADS] 2004). The authorities wish to promote competition and discourage cartel deals. As cartel agreements are illegal, the members of a cartel have to rely on trust (and reciprocity) rather than on written agreements that might incriminate them. “Leniency” provisions essentially guarantee immunity to whistleblowers even if they were involved in the cartel agreement. ADS (2004) tested various implementations of leniency provisions meant to undermine cartel agreements.

Specifically, they compared experimentally – and in a Bertrand price undercutting set-up (e.g., Ortmann 2003) -- three possible anti-trust policies (all of which areb either already implemented in the US or discussed by the European Commission) with the ideal market outcome.

- Standard: all cartel members are punished

- Leniency: whistleblowers are granted partial or full immunity dependent on how many other firms also blow the whistle

- Bonus: the theoretically best approach in which the incentives to blow the whistle are increased through rewards that consist of a share of the fines non-reporting members of the cartel are made to pay

- Ideal: a competitive market scenario in which cartel formation is theoretically not possible and empirically unlikely While the Ideal treatment is a one-stage game, the Standard, Leniency, and Bonus treatments are multi-stage games with a communication stage in which potential cartel members could hammer out agreements.

The key results were:

1. The market price in the Standard treatment was significantly higher than the market price in the treatment that induced competitive bidding;

2. The Leniency treatment led to significantly lower prices than those in the Standard treatment (there was no significant difference between this price and the one induced by competitive bidding), and (albeit, insignificantly) fewer cartels and more cartel members reporting;

3. The theoretically best approach (“Bonus”) did not live up to its billing:

Market prices were significantly higher than in the Ideal or Leniency treatments and statistically not different from the results in the Standard treatment. Moreover, this environment led to the highest (although not significantly) number of cartel formations.

In a recent manuscript, Buccirossi & Spagnolo (2006) analyzed theoretically the potentially perverse incentive effects of leniency provisions meant to combat corruption. In other words, they study leniency provisions in the context of trust games. (The key difference is that these games are sequential and asymmetric while the kind of Bertrand price undercutting set-up of ADS (2004) is simultaneous and symmetric.) Buccirossi & Spagnolo (2006) show analytically that leniency provisions meant to combat corruption may well be a two-edged sword in that they can be used as a disciplining tool: A firm, for example, that has accepted a bribe but does not want to deliver on the implicit deal, can now – under certain conditions – be punished for not having paid.8 Whether indeed leniency provisions have these perverse incentive properties, and how they could be broken down, is difficult to assess in the field. Experiments are an obvious way to study them9.

Methodological issues

As already indicated, experiments on corruption and corruptibility face – for all the acclaim that their internal validity warrants -- serious questions about their external validity (Harrison & List 2004). In fact, they probably face more reservations on this account than other laboratory experiments. Of particular concern are issues of “representative samples”, “representative stimuli”, and calibration of experiments on corruption and corruptibility and measures to fight them.

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