rational choice and anticorruption...
TRANSCRIPT
University of Mannheim
Faculty of Social Sciences
Chair for Political Science III
Hauptseminar “Rational Choice Theory: Voters, Parties and Governments“
Prof. Dr. Hanna Bäck
May 4th, 2009
Rational Choice and AntiCorruptionStrategies
Rico Grimm
Riedfeldstr.30
68169 Mannheim
0177/4064929
B.A. Politikwissenschaft
4. Fachsemester
Matrikelnummer: 1119786
Abstract
This paper aims to close the gap between Rational Choice Theories of corruption and respective
theories of anticorruptionstrategies. I adapt Anthony Downs' basic set of assumptions to the
phenomenon of corruption and therefore focus on a microlevelapproach. Furthermore, I analyse
the utilityfunctions of a corrupt agent and a corrupting client and how a principal with a
preference for corruption fighting should act in order to change these three factors in such a way that
the level of corruption decreases. As a result I propose that a principal should raise the payment of
the agent on the one hand and on the other hand share the monitoring of the agent with the public by
increasing the transparency of the bureaucracy.
Tags: Rational Choice, principalagent, corruption, bureaucracy, corruption fighting strategies
Table of Content
1 Introduction.................................................................................................... 3
2 Rational Choice Theory
2.1 Downs' Concept of Rationality.................................................................... 4
2.2 Actors Decisions: A CostBenefitAnalysis................................................. 7
2.3 The PrincipalAgentModel......................................................................... 8
3 The phenomenon of Corruption
3.1 The Definition of Corruption....................................................................... 10
3.2 The Impact of Corruption............................................................................ 12
3.3 The Roots of Corruption.............................................................................. 13
4 Applying RationalChoiceTheory to Corruption
4.1 The Basic Assumptions reviewed................................................................ 15
4.2 Analysis of Corruption.
4.2.1 The PrincipalAgentClientConstellation................................................ 17
4.2.1.1 Typology of the involved Costs and Benefits......................................... 19
5 Strategies to fight Corruption
5.1 Increasing Costs, Decreasing Benefits of Corruption.................................. 20
5.2 Altering the Probability................................................................................ 22
6 Critique .......................................................................................................... 24
7 Conclusion ...................................................................................................... 25
References............................................................................................................ 26
Asseveration......................................................................................................... 29
1 Introduction
It has been more then 50 years ago that Anthony Downs published his widely respected and
acclaimed book An Economic Theory of Democracy which proposed a new, economic look on
political action. His Rational Choice approach fostered plenty of new insights in the following
years, especially in the areas of voting, parties and governments. Nevertheless, it could not be
applied to all phenomenons of politics straight away. In particular the paradox of participation
left many scholars startled.
But it is not just the rather classical fields of politics, such as voting, where Rational Choice
theory delivers good insights. With the rise of corruption research, especially with the
introduction of the Transparency International Corruption Perception Index many theories have
been applied to describe the phenomenon of corruption. The most promising model to describe
corruption on the individual, on the actortoactor level is the economic model developed by
Johann Graf Lambsdorff and Susan RoseAckerman. Moreover the related principalagentmodel
helped to understand corrupt exchanges and relationships. But until now there is no theoretical
approach in this school of thought that accounts for the need to fight corruption.
This paper aims to close the gap between understanding and fighting corruption by applying
Rational Choice Theory, as presented by Anthony Downs, in general and the principalagent
model in detail to the problem of corruption in order to deduct corruption fighting methods that
can be part of a “big push” (Acconcia/Cantabene 2008), a holistic approach that tackles the roots
of corruption on all levels. To state it in a more methodological way: What is the highestranking
alternative if a principal wants to fight corruption within his own bureaucratic unit?
I propose a model in which I introduce a fourth actor, the public, as a means of the principal to
circumvent the classical agencyproblem that holds especially true in the case of corruption. The
principal can share the monitoring costs of the agent with the public because they have the same
preferences.
Due to two reasons this task is a worthwhile endeavour: It helps to test the possibilities of
Rational Choice Theory in mainly uncharted waters and it widens our understanding of
corruption fighting, a field that was so far mainly advanced through practical work rather then
theoretical deliberations. Thus the aim of this paper is normative. I assume that corruption is bad
and needs to be fought against. Rational Choice Theory shall serve as a starting ground for
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devising specific anticorruptionmeasures.
Chapter 2 of this paper describes Rational Choice Theory, presents the main assumptions, a
typology of the costbenefit analysis and the principalagentmodel. Chapter 3 shortly shows,
how corruption can be defined, why corruption is such a severe problem for the institutional,
political and economic stability of a country and where it stems from. Whereas chapter 4 applies
the theoretical framework to the special case of corruption, introduces typical costbenefit
calculations of the respective actors and states a corruptiondifferential similar to the voting
differential presented by Downs. Chapter 5 finally tries to give an answer to the mentioned
question above by analysing step by step how a principal could alter the utilityfunctions of the
agent and the client.
2 Rational Choice Theory
2.1 Downs' Concept of Rationality
Rational Choice Theory as described by Anthony Downs is based on a set of connected
assumptions. All in all one can count twelve major assumptions that Downs makes about human
behaviour. They are all based on a concept of Rationality that “is never applied to an agents ends,
but only to his means” (Downs 1957, 5). But the most fundamental assumption Downs makes in
his study deals with the basic setup of the human mind.
He assumes, following prior economic models of human behaviour, that “concious rationality
prevails” (Downs 1957, 4) and thereby builds a comprehensible pattern of behaviour. Thus
assumption one can be stated as follows:
1. Human behaviour is “reasonably directed toward the achievement of concious goals”
(Downs 1957, 4)
Hence an actor is goalseeking.
Further he describes rationality as some sort of efficiency, analogous to the so called “Economic
Principle” where a entrepreneur or a company always tries to maximize the output for a given
input or vice versa. Thus assumption two can be stated as follows:
2. A rational man “uses the least possible input of scarce resources per unit of valued
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output” (Downs 1957, 5).
Hence an actor is a costminimizer and a benefitmaximizer.
The Rational Choice perspective does not focus on or questions the particular reasons an actor
has to behave in a certain way, but his reasoning. It tries to model 'processes of action'. Downs
proliferates a whole set of followup assumptions that further narrow down his concept of
rationality :
3. An actor can always make a decision when he has got two alternatives to choose from.
4. An actor can rank all alternatives in such a way that each is either superior, inferior or
indifferent to the others.
5. This rankorder is transitive.
6. The actor always chooses the highestranking alternative.
7. The actor would always choose the highestranking alternative, if the set of alternatives
does not change.
Following these assumptions an actor can assign utilities to every alternative.
In order to circumvent the tautological conclusion that an actors “returns must have outweighed
his costs in his eyes or he would have not undertaken it” (Downs 1957, 6) Downs claims his
concept of rationality to be useful only in respect to political and economic rationality:
“Nevertheless in our model [...] a behaviour is considered irrational [when] it deploys a political
device for a nonpolitical purpose” (Downs 1957, 7). Completely aware of the shortsightedness of
this understanding of human behaviour Anthony Downs justifies his reasoning with a mere
methodological argument: “We must assume men orient their behaviour chiefly towards
[economic and political welfare]; otherwise all analysis of either economics or politics turns into
a mere adjunct of primarygroup sociology” (Downs 1957, 8). He argues further that all these
primarygroups would counterbalance each others peculiarities and goals and end up influenced
by economic and political goals rather then social, cultural or biological ones. In consequence,
Downs tries to ground the validity of his deductive, individualistic model on empirical, group
sociological points. Nevertheless assumption eight according to Downs can be stated as follows:
8. An actor can only behave rational as explained in assumption 17 within the borders of
the economic and political sphere.
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When this actor calculates the costs and benefits of a certain action, due to his incomplete and
incorrect information he can not foresee the future behaviour or even the detailed calculations of
other actors:
9. He faces a certain degree of uncertainty.
Hence an actor needs to allow for probability in his costbenefitcalculations.
But the Downs'ian actor has difficulties to calculate properly if he faces massive, seemingly
irrational behaviour by other actors. If chaos rules a group of actors and none of them, except the
Downs'ian actor, is apparently behaving rational to attain a political or economic goal he faces
two alternatives: To become irrational himself or to try to discern the underlying patterns of the
seemingly irrational behaviour of the other actors (regarding this point see also assumption nine)
This however is only possible if he can bear the costs of doing so but moreover if there is any
kind of rational pattern. Thus assumption ten can be stated as follows:
10. A rational actor “requires a predictable social order” (Downs 1957, 11).
Up to now the Downs'ian political or economical rational actor is a goalseeking costminimizer
and benefitmaximizer who requires a predictable social order and can assign different utilities to
a number of alternatives but can not be sure of them because he faces a certain degree of
uncertainty. This rational actor is not more than an intelligent tool because he is missing an
essential goal to seek, apart from the instrumental goals of costminimizing and benefit
maximizing. Therefore Downs, concious of this gap, assumes that the actor is selfish. He bases
that assumption on mere empirical descriptions of human behaviour of Adam Smith and John C.
Calhoun. Thus assumption eleven can be stated as follows:
11. A rational actors seeks mainly selfish goals.
Hence he is egoistic.
These eleven explicitly stated assumptions do implicitly exclude the existence of altruism in its
strict sense. Nevertheless, if an actor seeks mainly selfish goals, he can not seek mainly altruistic
goals at the same time. It is a contradiction. Still these assumptions do not exclude per se the
existence of actions for the greater good which are: Actions that aim at fulfilling an individual
desire of the actor but at the same time, willingly or not, foster advantages for other actors or a
group of actors too. This leads to assumption twelve:
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12. Rather than being an end in its own right, actions for the greater good are an
externality of goalseeking behaviour.
The important question following these assumption is how do actors behave in a certain situation
and not why; ultimately to unspecified is the term 'selfish' to give a convincing set of reasons.
But by doing so, the scholar trades conceptual scope for methodological precision. Even though
these assumption are short of so many seemingly important components and were criticized quite
harshly by scholars from the whole spectrum of social science (e.g. Green/Shapiro 1994), they do
enable scientists to develop models that can be used to describe human action quite precisely, not
only with words but with formulas too as the next chapter will show.
2.2 Actors Decisions: A CostBenefitAnalysis
I already mentioned that an actors decision can be modelled via a costbenefitapproach. The
simple assumption underlying this deliberation is that every action charges the actor with a
certain amount of costs, may they be factual such as money or nonfactual such as power and
gives him at the same time a certain amount of benefits. We can, according Downs, denote these
as following:
Costs for an action x: C∈ℝ=C x
Benefits for an action x: B∈ℝ=Bx
However when Actor A calculates the costs and benefits he can not be perfectly sure that these
actually occur. For instance he could decide to buy strawberrymilk at the corner shop. If an
elephant is blocking the pavement now, A needs to dodge to the street and thus spend more time
and walking power than estimated. The same holds true for the benefits: The shop could have run
out of strawberrymilk because the elephant could had embroiled the strawberrymilkdelivery
truck in an accident and thus decreased the benefits of A. Therefore A has to include a term of
probability into his calculation. The probability denotes as following:
Probability for cost or benefits of action x: P∈ℝ{0P1}:=PC , Bx
Riker and Ordeshook developed one classical way in political science to calculate the utility of
Actor A's decision, based on a voting calculus Downs had proliferated (Riker/Ordeshook 1968).
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Utility thereby denotes as following:
Utility for an action x: U∈ℝ=U x
The utility calculus for an action x could thus be for instance (regarding to the act of voting):
U ex=P x
×Bx−C x
However, this calculus is an example of what such a calculus could consist of only. It is specified
to the circumstances and peculiarities of the voting act. It diminishes the possibility that the costs
will unexpectedly rise what may hold true for the act of voting but not for all other actions.
Hence there is no calculus that could describe all individual human actions correctly. It needs to
be adapted to the respective circumstances in order to be applicable.
According to assumption three an actor can always make a decision when he faces two
alternatives. By comparing the two utilityvalues of these alternatives an actor is able to discern
the most efficient course of action. Disregarding the possibility that he misestimated the benefits
or costs we can put up a differential:
The decisiondifferential: U x−U y
If the result is positive, the actor goes for action x. If it is negative he chooses y and if it is zero
he makes no decision (Downs 1957).
Now we know the mental framework of a rational actor and how he makes a decision. But at this
point we do not know who this actor actually is and in what environment he acts. The Principal
AgentModel is able to model this environment and moreover fits very nicely into the core
assumptions of Rational Choice Theory.
2.3 The PrincipalAgentModel
It was initially designed to model economic relations such as a relation between the owners of a
company and its managers. But soon it entered the stage of political science. It was used to model
bureaucratic relations within public institutions. Essentially it is concerned with the design of
rules by the principal “which are directed at assigning tasks to the agent […] and intended to
regulate exchange with a client” (Lambsdorff 2006, 15). A principal could be for instance the
government which sends an agent, an ambassador, to the United Nations to deal with a client,
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other ambassadors (Lambsdorff 2006).
However, due to the design of this principalagentrelation, several problems occur; they are often
referred to as 'the agency problem' The principal faces a constraint of resources, such as time,
which leads him to delegate some tasks to an agent. This agent in turn gets thus a surplus of
informations compared to the principal. The problem is that a principal can not perfectly observe,
control or even evaluate whether the agent did his job properly: he faces severe monitoring
problems (Lambsdorff 2006). Even if the principal based his evaluation on the outcomes an
agent produces by a certain action, he can not be sure that this outcome was definitely produced
by his agent and not by someone else, a client for instance and additionally faces the problem that
an agent can – in any imaginable situation – only influence the outcomes but not deliberately
determine them. Hence the agent and his principal are autonomous actors, each of them has his
own goals (see assumption eleven) and therefore his own utilityfunction. The costbenefit
analysis of the agent does not necessarily match the one of the principal, that is: the preferences
of the principal and the agent does not necessarily match. The utilityfunctions of a principal P
and an agent A could read like this (Groenendijk 1997):
Utilitysetup of principal P and agent A: UP=U a , b , c≠U A=U d , e , f
But it is possible that the agent produces goods for the principals' good as an externality (see
assumption twelve). The means to do that is a contract which defines the task and determines the
payment of the agent. This contract shall be enforced by sanctions, that is the loss of the
payment. But – as shown before – it is hard for the principal to discern whether the agent fulfilled
his tasks or not. The principal thus faces a problem of credibility regarding possible sanctions
and or bonuses. The same holds true for the agent who wants to conceal as much of his work as
possible in order to not lose his informational advantage. But the harder he tries to conceal his
work, the more possible it is that the principal doubts the agents commitment and hence starts to
increase monitoring or even depose him from office. The agent thus needs to bond with the
principal.
There are, however, three basic ways to solve the problem. They are all initiated by the principal
because hierarchally he is at the top (Groenendijk 1997):
At first the principal could increase the incentives for the agent to do his job properly, e.g. he
could increase the payment or he could increase the punishment. This way the principal does not
change the goals of the agent, but he increases the probability that the agent does not defect
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because he increases the costs of doing so.
A second possibility is persuasion. Thus the principal would try to change the agents goals, but
not his utilityfunction. The new utility of A could look like this:
U A=U a ,b , e
Thirdly the principal could use directives to narrow down the set of possible actions the agent
has. This does not necessarily change the agents utility function or his goals and the agent is still
as hard to monitor as he has been before.
Studies name (e.g. Lambsdorff 2006) a lot more methods to solve the principalagentproblem
but they are all examples of the three mentioned, general descriptions. Anyway, the agency
problem plays a crucial role, if we want to model the phenomenon of corruption. It could be
interpreted as the actual microlevelreason for corruption moreover .
But before we can discern the peculiarities of Rational Choice and PrincipalAgentTheory
regarding corruption, we need to have a closer look at corruption itself to identify the most
important features of this phenomenon.
3 The phenomenon of Corruption
3.1 The Definition of Corruption
Corruption literature proliferates many different definitions of corruption. Up to this point no
widely accepted definition was brought up. The main problem of defining corruption is to mark
the border between acceptable gifts and nonacceptable bribes, between useful networking and
harmful cartelling or clientelism. This differentiation though is not a conceptual or theoretical
problem but a cultural one. To give anecdotal evidence: Whereas it is completely normal in a
Turkish village to point out to the foreign visitor that the own uncle is the chief of police and
could surely help if there is any kind of problem, in a French city such an offer would be very
unlikely because it would be perceived as somehow 'wrong'. Thus we can not define corruption
based on an actual measure of the corrupt act. But there is the possibility to define it based on
laws, so to say: 'Corrupt is, what is defined as corrupt in the law.' But the problem remains. If we
accepted corruption as an anthropological constant, we could not uphold the superiority of the
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law because laws are a product of their respective society. It is thus logically perfectly possible to
be corrupt without doing something illegal.
Following these observations, we need to define corruption in more general, but cultureflexible
terms. Transparency International itself came up with a very short, but precise definition:
Corruption is the “misuse of entrusted power for private gain“ (Transparency 2008). The main
component of this definition is its publicprivatedimension. Whereas an corrupt agent seeks to
increase his private benefits he defies his public responsibility, a responsibility that was given to
him, or “entrusted”, by a principal, may he be a chief of a department or the electorate.
If we look at the suggestion of Klaus Offe, we can see the conceptual value of this point:
Corruption is a “bilateral, a voluntary and deliberate illicit deal between two actors involving the
exchange of official decisions for some payment, or promise of payment“ (Offe 2004,78). Offe
does give a quite comprehensive description of the corrupt act, especially his mentioning of the
voluntary factor of corruption is noteworthy, but he does not explain where 'illicit' stems from,
who defines what illegal is and what not. Nico Groenendijk in contrary sees corruption “as any
unauthorized transaction between agents and a third party” (Groenendijk 1997, 210). In his view
the transaction becomes corrupt when it is 'unauthorized', that is without the approval of the
principal. But the problem remains that a principal can push corruptioncriteria that are so
narrow that almost nothing is corrupt and that otherwise corrupt acts become a mere
disobedience. The before mentioned argument concerning laws holds here true too. Essentially
Groenendijks suggestion lacks a term concerning the motivation of the corrupting agent.
But all three mentioned definitions are still to technocratic; they fall short of accounting for
substantial human needs that need to get fulfilled. Imagine a situation in which client K had a car
accident in a tropic country, gets injured but is still able to walk and talk. Actually K would not
need to see a doctor. He is alive. But the tropics clima favours the spread of harmful wound
infections. Thus K goes to see Agent A, a doctor, who would give him medical attention if he
pays a certain amount of money on top of the regular price. Faced with the alternatives of a
potential mortal infection or a corrupt deal, K pays the extra money. K bribes and corrupts A –
deliberately and for purely private reasons. But K had no real choice if he had not wanted to risk
his life. He acted in selfdefence. Thus we need to exclude the aspect of selfdefence from the
definition of corruption. Hence this paper will use the following definition of corruption:
Corruption is an actors deliberate misuse of entrusted power for private gain, in case he does not
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face a lifethreatening situation.
Moreover we could discern between political and bureaucratic corruption. We speak of political
corruption when the corrupted agent was elected and we speak of bureaucratic corruption when
the agent was not elected (Lambsdorff 2006).
3.2 The Impact of corruption
If we tackle the phenomenon of corruption we tackle one of the most severe problems
administrations and governments face since there establishment. In countries of all political,
institutional, historic and cultural backgrounds occurs corruption. The question is not whether
there is corruption, but how widespread and intense it is. A look at the current Corruption
Perception Index (CPI) by the NGO Transparency International underlines this fact: None of the
180 included countries gets 10 out of 10 points. Denmark leads the index with 9.3 whereas
Somalia gets a mere 1.0. Just about one third of all countries gets a score better then 5.0
(Transparency 2009).
The consequences of corruption are as severe as they are widereaching. The current literature
suggests that corruption
• lowers the total amount of Foreign Direct Investments (Wei 2000).
• increases the total size of the underground economy (Johnson/Kaufmann/ZoidoLobaton
1998).
• reduces government revenues (Johnson/Kaufmann/ZoidoLobaton 1998).
• lowers environmental regulation and thereby promotes pollution (Welsch 2004) .
• increases economic inequality.
• lowers levels of social trust.
• lowers level of justice fairness (Uslaner 2008).
The effects of corruption become even more severe, if we acknowledged that it is 'sticky', that is
pathdependent (Uslaner 2008). To sum it up: Literature suggests that corruption is harmful. But
there are other opinions. Some suggest that corruption could be some sort of grease for a
dysfunctional bureaucracy with too much regulation and thereby a way to keep economy and
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society running (Huntington 1990). But nevertheless: if corruption had these effects then just for
a short amount of time. In the long run it worsens the dysfunctionality of the bureaucracy
because bureaucrats have strong incentives to protect the regulations and even increase the
number of hurdles to get even more bribe revenues (RoseAckerman 1999). That is why I assume
that corruption should be fought against.
3.3 The Roots of Corruption
There are as many models to explain the phenomenon of corruption as there are schools of
thought in political science. To get a more general view we can sort the different approaches in
macro, meso and micromodels.
Samuel P. Huntington for instance describes corruption on a macrolevel focusing on institutions.
He understands it mainly as the consequence of social modernisation. According to his model
corruption occurs when radical external changes force a country to change its government system
from authoritarian to democratic and thereby initiate a change of values. New social actors push
for change but do not have democratic channels to express there opinion yet – thus they become
corrupt. The increase of the number of laws and rules that accompanies this regime change even
worsens corruption once more. The countries of the so called 'third wave of democratisation' are
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Graphic 1: Relations of Models of Corruption; own graphic
an example for Huntingtons theory, especially the postcolonial states of Africa (Huntington
1990). Approaches that focus on values are part of this school of thought. Their reasoning is
straightforward: If a society does not value public service and civil commitment, the likeliness of
corruption rises (Treisman 2000).
A second approach focuses on the soft, social factors of the mesolevel in explaining corruption.
Eric M. Uslaner is one of the main proponents of this approach. According to his model, it is the
degree of economic inequality, general level of trust and the efficiency of the justice system that
determines how corrupt a country is. This three aspects together build the so called “inequality
trap” (Uslaner 2008,5): high levels of economic inequality lead to the establishment of a
economic elite that tries to secure its influence via clientelism and cartelling. It is especially the
justice system that suffers of this development because “no other political institution is
predicated upon equality to such an extent” (Uslaner 2008,21). The population loses its trust in
the governing system, such as police forces and judges, and thereby stops trusting each other
because their (economic) rights and contracts are not protected any more by a third force. Social
control disappears, the level of corruption and crime rises among the nonelite population and
thereby increases the economic inequality even further (Uslaner 2008).
A third approach mainly developed by Susan RoseAckerman, Johann Graf Lambsdorff and Nico
Groenendijk focuses on the microlevel, explains corruption as failed actortoactor relationships.
It is this approach that stands in the centre of this paper.
But by focusing on the microlevel I do no want to doubt the validity of the other approaches.
Contrarily I acknowledge that corruption is a social, institutional and cultural phenomenon that
needs to be tackled in a holistic way. Graphic 1 shows on which sphere I concentrate as part of a
bigger attempt to understand corruption and consequently fight it properly. The relationship
between the three mentioned levels, macro, meso and micro, is a causal one. Because since we
can imagine how a single actor bribes another actor, we can estimate the costs, benefits and
utilities involved. But focusing alone on the microcosmos does not explain why there are
differences between quite similar countries in the level of corruption such as in Slovenia or
Romania (CPIScore Slovenia 2008: 6,7 and Romania 2008: 3,8) or why the corrupting actor is
forced to bribe in the first place. To understand these facts we need to look at the mesolevel, at
facts such as the general level of trust, economic inequality, institutional design or fairness of the
justice system. These factors are themselves related to the historic legacy and developments of a
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country on the macrolevel.
To sum it up: this chapter presented a definition of corruption, showed what severe consequences
corruption can have and outlined the possible reasons for it. The decision to focus on the micro
level is yet a rather practical one. First the scope of this paper does not allow me to include more
aspects and secondly is the actorlevel the decisive one. If the principal can not change the cost
benefitratio of these actors, he can not change the status quo of corruption in general. Every
corruption fighting method needs to influence, directly or indirectly, the actors' utilityfunctions
in the respective departments, police stations, parliaments, town halls and so on. The
deliberations of the following chapter shall thus serve as a starting ground for more
comprehensive and holistic approaches in corruption fighting, may they be practical or
theoretical.
4 Applying RationalChoiceTheory to Corruption
4.1 The basic assumptions reviewed
There is the need to adapt some of Anthony Downs assumptions to the special case of
corruption1. Because if we continued in our deliberations without doing so we would entangle
ourselves in unsolvable logical paradoxons.
Assumptions one to seven2 fit to the circumstances of corruption very nicely though. They
describe the mental framework of the agent, the client and the principal and thus pose no
problem. Nevertheless, assumption eight is problematic:3 the separation between the polit
economic sphere. This separation might work to explain voting, government formation or party
behaviour but it is not applicable to the phenomenon of corruption. Corruption mixes per
definitionem 'political devices' and 'nonpolitical purposes'. Let us assume for instance that Actor
A works at the communal Building Department and has to decide between several building offers
1 In the following chapters I speak only of bureaucratic corruption.2 (1.) Human behaviour is “reasonably directed toward the achievement of concious goals” (Downs 1957, 4)(2.) A rational man “uses the least possible input of scarce ressources per unit of valued output” (Downs 1957, 5).(3.) An actor can always make a decision when he has got two alternatives to choose from.(4.) An actor can rank all alternatives in such a way that each is either superior, inferior or indifferent to the others.(5.) This rankorder is transitive.(6.) The actor always chooses the highestranking alternative.(7.) The actor would always choose the highestranking alternative, if the set of alternatives does not change. 3 (8.) An actor can only behave rational as explained in assumption 17 within the borders of the economic and political sphere.
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for the new school. If A obeyed the regulations he would choose the cheapest offer, but
entrepreneur K who made a more expensive offer bribes A. Thus K gets the building assignment.
A spends the bribe on a new sports car and thus used a 'political device', communal procurement,
for 'nonpolitical purposes', to make a dream come true. We thus need to abolish this assumption
completely. This is possible for this paper because I am, in contradiction to Downs, not aiming at
a retrospect, causal explanation of a certain human behaviour, but at a rather descriptive, stylized
model of corruption – at no point assuming that a costbenefitanalysis is the decisive reason for
an actor to act.
However, assumption nine4 holds true for the special case of corruption. The probabilityproblem
regarding the costs and benefits corrupt agents and clients face might even be more severe.
Because in contradiction to such acts as voting5 the costs are not fixed. The cost for polling does
not change over time because an actor simply needs to get informed – not necessarily though ,
make his way to the voting booth, vote and make his way back. No other costs occur after the
election as long as the voter does not tell anybody who he voted for and therefore needs to justify
his decision afterwards. Corruption is different though. There is at all times the possibility that
an agent or the client gets caught, if not by the principal himself then by a fourth actor such as a
journalist or a prosecutor. Depending on the country both work in, (1) the client may face a legal
prosecution and (2) the agent not only faces the loss of his job and therefore of his payments but
legal prosecution too. There is, no matter how sophisticated the corrupt act was in the first place
always a chance of getting caught and thus a chance that the involved costs rise unexpectedly. Of
course the same holds true for the benefits, unless the corrupt transaction does not take place, at
the exact same time or is legal and can be enforced by law. The specific dynamics of the agent
clientrelation are the reason for that (see Lambsdorff 2006 for detailed description). We thus
need to alter, following Downs assumption nine, the calculus for an agent A and a client K as
follows:
TheCorruptionCalculus for an agent A and a client K for their respective actions x or y:
U x , yA, K=PB×Bx , y
A , K−PC×C x , yA , K
The assumptions ten6 and eleven7 fit to the phenomenon of corruption without any alterations.
4 (9.) He thus faces a certain degree of uncertainty.5 Voting Calculus: U= P*BC6 (11.) A rational actor “requires a predictable social order” (Downs 1957, 11).7 (12.) A rational actors seeks mainly selfish goals.
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Assumption ten holds true as long as the principal and the client behave rational and thus
predictable. There might be, however, the possibility that any of the two participants of the
corrupt act, the agent or the client, hide their true goals, costs or benefits and thus seem to behave
irrational. The other actor faces the problem of incomplete information in this case and can not
discern the rational pattern of behaviour that actually exists. Concerning assumption eleven, we
might add that the corrupt act in itself is a prime example of selfish behaviour. There is no way to
deduct altruistic goals from a corrupt act as it is defined above, because the misuse of entrusted
power, may it be for instance the withdrawal of entrusted money by the agent has to harm the
principal, the owner of the power or the money. Even if the agent gave all the money to a third
actor, still there would be the damage he has caused to the principal. The power an agent wields
is indivisible: he either has it or not.
Assumption twelve8 is applicable to corruption at least when one models it in terms of a
principalagentrelation. Because at the core of this model lies, as shown in Chapter 2.3, the
assumption that an agent would not fulfil the principals' tasks without incentives of any kind,
may there be high costs of defection or high benefits for compliance. Or to put it differently: a
principal tries to give enough incentives that his agents' goals match the principals tasks and the
agent thus produces actions for the good of the principal as an externality. Hence if one finds a
way to conciliate the agents personal goals with the principals' own demand for collective goods
the level of corruption would decrease.
But I actually need to amend the set of assumptions. For the sake of parsimony we thus assume
that there are no networks on both sides of the corrupt relation:
• All actors are unitary actors.
4.2 Analysis of Corruption
4.2.1 The PrincipalAgentClientConstellation
Modelling corruption with a principalagentapproach goes analogous to assumption eleven since
a principalagentrelation is a predictable social order per se. The agent and the principal have
perfect information about their respective position in this order as long as their contract is
8 (13.) Rather then being an end in its own right, actions for the greater good are an externality of goalseeking behaviour.
17
exhaustive. But further examining the specific constellation of agent, principal and client in a
corrupt exchange will help to understand the involved Costs and Benefits and thus help to
develop strategies that change the costbenefitratios of the participating actors.
In principle, disregarding the reason for corruption in the first place that are placed on the meso
level (see Chapter 3.3). A stylised, successful corrupt act can be described as follows:
1 A client K evaluates corruption as rational for fulfilling his own goals.
2 K searches for a corruptible agent X within a bureaucratic unit that is controlled and
monitored by principal A.
3 K needs to discern first which agent is corruptible and which one is not.
4 Ultimately K finds a corruptible agent X, he will be named A.
5 Thus K offers A some sort of incentive to differ from P's prescribed tasks and regulations
in order to promote his own goal.
6 A evaluates the offer of K and decides to take it or not.
7 If A agrees, the corrupt deal becomes reality.
8 After the deal is done, both K and A still face the danger of an unexpected cost rise due to
discovery of their doings.
9 A and K may reevaluate their situation and stop or repeat the process.
10 The principal does not know anything during the whole time.
This proceeding does not need to get initiated by a client K necessarily. It is imaginable that the
corrupt agent A starts to search for a corruptible client K himself. If so, A and K simply trade
positions. A new principalagentrelation between A (agent) and K (principal) emerges in effect
(Groenendijk 1997). The main preference of the principal is to decrease the level of corruption;
he assigns the highest utility to it, whereas the agent and the client are interested in hiding their
activities before the principal, they assign they highest utility to that.
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4.2.2 Typology of the involved Costs and Benefits
I already presented a utilityfunction9 that is applicable and more suitable to the phenomenon of
corruption then the ones used to model voting for instance. This function however does not
disclose any detailed information about the specific setup and relations of the costs and benefits
involved for the three participants. Nico Groenendijk gives a thorough overview presented in
Table 1.
Nevertheless this typology needs one explanatory amendment: the principals' costs and benefits
are the decisive ones if we would like to discern if a corruption fighting strategy is feasible or
not. Because it is only in the principals' interest that corruption decreases, it is not in the interest
of the other two corrupt actors. Hence if we wanted to deduct possibilities of corruption fighting
we would need to alter the costbenefitrelations of the agent and the client, we needed to
“destabilize the corrupt relationship” (Lambsdorff 2002, 221).
Principal P Corrupt Agent A Corrupting Client K
Costs • increased failure costs
• costs of monitoring and
preventing corruption
• negative externalities if P's
and C's preferences do not
match
• probability of costs regarding
a penalty given by P
• Searching costs
• Negotiating
Costs
• Coveringup
Costs
• Moral Costs
• Probability of a
penalty
• Searching costs
• Negotiating
Costs
• Bribe
• Coveringup
Costs
• Moral Costs
• Probability of a
penalty
Benefits
• Possible yields of penalties• Positive externalities if P's
and C's preferences match
• Bribe • Service rendered/good provided by A
Table 1: Costs and Benefits in a corrupt exchange based on Groenendijk 1997
9 U x , yA , K
=P B×Bx , yA , K
−PC×C x , yA , K
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5 Strategies to fight Corruption
5.1 Increasing Costs, Decreasing Benefits of Corruption
I start by looking at the costs of the agent and the client and continue by discerning the
probabilities. There are by principle two kind of costs: (1) the ones that can be altered by the
principal on short notice and through prime administrative measures and (2) costs that could be
altered when the administrative measures are accompanied by a more holistic approach. The first
are searching costs, negotiating costs, coveringup costs and the bribe. In the second category
fall the moral costs because morality can not be changed by an directive. We thus assume that a
principal cannot change the moral costs effectively.
If we look at the searching costs we see that there are three basic ways a corrupt relation could be
established: (1) the client knows the agent already, (2) the client knows a middlemen who knows
the agent and (3) the client does not know a corruptible agent. The costs are highest in the latter.
A principal thus needs to foster an administration where his potential corrupt agent has got as
less contact to potential corrupt clients or to middlemen as possible. But he cannot – of course –
forbid contact completely or hide the identity of his agents because they need to work by
definition with clients. One measure would be to decrease chances that the agent builds a
relationship to a client by rotating the agents within the department or even across departments,
let us say every two years. This however charges the principal himself with massive teaching
costs because he needs to break in new agents every two year. Moreover it decreases the potential
benefits of the principal due to the loss of expertise that would occur every two years. This
method is not feasible for the principle if done repeatedly. The costs, however, may be bearable if
it is done only once. The principal could even employ more agents to monitor the relationships of
his agents – there however applies the agency problem again, the monitoring costs would be very
high and the utility thus very low. There are many other possibilities that are similar to the ones
mentioned above, such as an directive that forbids the agents to meet clients in private e.g. in the
Squash Club but with all these measures comes the fundamental agency problem along. A
principal thus cannot efficiently prevent his agents from contacting corrupting clients or vice
versa.
We thus turn to the second costs, the negotiating costs. A principal cannot change the negotiating
costs of a corrupt exchange directly because he does not know of the negotiation in our model.
20
Negotiation is done between an agent and a client. He could however influence them generally by
increasing the basic contacting costs of the agent and the client e.g. by standardly recording all
telephone conversations the agent makes. Apart from the ethical implications of doing so the
principal would need more agents once again to listen to all the conversations.
The described arguments hold true for the coveringup costs too. The better the principals'
monitoring of the agent the higher are coveringup costs. But in return are the monitoring costs
higher and the more severe is the agency problem.
There is, however, the possibility of making the bribe as costly as possible. In our model we
cannot possibly assume that the resources of the principal are unlimited and we cannot decide
per se if a rise in payment of the agent would be feasible for the principal without doing
empirical research. A rise of payment, however, brings some basic advantages compared to the
other strategies. The payment rises and that is it. The principal does not need to monitor more
agents or incalculate a massive loss of benefits as with altering the other types of costs. The
reasoning behind a paymentrise is straightforward: the higher the payment, the lower is the risk
that a riskaverse agent defects and becomes corrupt. Moreover the client needs to pay a higher
bribe, his costs increase.
The benefits the client receives is a certain, previously agreed on service or good. A principal
who wants to reduce the benefits an agent can provide to a client has just one option without
increasing his own monitoring costs for this particular agent: withdraw power and resources from
the agents desk. The principal thereby narrows down the total amount of benefits an agent could
deliver to a client. But: if the agents powers are too limited in scope his service could be rendered
completely useless to the principal and moreover the principal needs to delegate the power to
another agent if it is not possible to withdraw this power completely from the respective
bureaucratic unit. It is thus reasonable to assume that the benefit a principal could receive by
preventing a certain agent of getting corrupted gets balanced by the costs the monitoring of the
other agents induces. Therefore the principal is in a difficult position. At one hand he has to
make sure that no one of its agent becomes too powerful and the potential benefits the agent
could receive from misusing this power too high, and on the other hand he has to weigh into his
calculations the efficiency an agent could possibly deliver with a certain amount of restrictions.
Therefore we can not deduct any corruption strategy by just looking at the general benefits of the
client or the agent.
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5.2 Altering the Probability
At first glance altering the probabilities seem very useless because at the core of them the agency
problem lies after all: if the principal can not monitor the agent perfectly, defection, that is in our
case corruption, is more likely. Thus, closely linked are monitoring and probability of the costs
and benefits. The same holds, with restrictions, true for the probabilities of the costs and benefits
themselves at least if the corrupt act is illegal. Because in this case the costs rise dramatically
while the benefits decrease dramatically. If an agent or a client gets caught he faces not only
punishment and thus higher costs but also a payback of the benefits he received as a
compensation payment to the principal. But enforcing payback of benefits that were illegally
accumulated is usually not part of the principals authority in a bureaucratic relationship, he thus
needs to focus on increasing the probability of the costs – without increasing the monitoring
costs. That seems to be a contradiction.
But Anthony Downs gives a clue on how to solve this riddle by formulating his model of a
democratic twopartysystem. He assumes that parties in a democracy are voteseeking, they
„formulate policies in order to win elections, rather than win elections in order to formulate
policies“ (Downs 1957, 28). According to him parties compete with each other in order to get as
many votes as possible and thereby the possibility to seize power. But because the voter is the
decisive actor in a democratic election parties try to increase the benefits for the voter as much as
possible and thereby the incentives to vote for them. Thus the collective good 'democracy' gets
produced – even though, or better yet, because parties are only interested in their own personal
gains. In the case that Downs describes the preferences of the voter and the party match – they
both assign the highest utility to the act of voting and thus the system of democracy rather then to
coup d'etats or abolition of the state. The parties want a democracy because they want to govern
for a secured period of time as costlessly as possible and the voters want a democracy because
they want to participate without paying the costs of becoming politicians. If we convey this set
up to the phenomenon of corruption the description could be stated as follows: in order to
produce the collective good 'efficient bureaucracy without corruption' the bureaucratic principal
needs to find an actor who shares his own preferences and assigns the highest utility to non
corruption.
Assuming that the respective bureaucracy does not serve another bureaucracy actors who can be
interested in an efficient bureaucracy are at first the politician at the head of the bureaucratic unit
22
and then the public who gets governed by the politician. At least, in democracies the public is
always the principal of the politician because he is elected by it. A state, however, is per
definitionem always aimed at a population and thus liable to that population – we could say, by
relaxing some assumptions of the traditional model, that the population is the principal of the
state and thus of the politician. We can thus assume that the public is the principals' principal in
our model of a bureaucratic corrupt exchange. That is why their preferences match and why they
both want to decrease the level of corruption.
What the principal of our model can do now, based on the previous insights, is to use his own
principal, the public, as a defacto agent, to use the monitoring interest of the public for his own
goals. He is not, of course, authorized to issue directives to them but he can delegate authority to
to them: the authority to monitor his agent and thereby outsources monitoring costs and increases
the probability of the corruption costs. What seems as a way to outsmart the public fits very
nicely if we consider that the preferences of the public and the principal match. The respective
public I am talking about consists predominantly of citizens, opposition parties, NGO's,
journalists, companies and similar actors in a state. We nevertheless treat the public as a unitary
actor for the sake of argument.
But this only holds true if we assume that the principal assigns the highest utility to corruption
fighting (as we do in our model). But this is not necessarily the case in every setup. It depends
on the costs the corruption inflicts generally. This is a substantial drawback to the matter of
corruption fighting considering that the principal can be interested in staying in office himself.
Thus if the public had been discovering a corrupt act in his bureaucratic unit, he could be hold
liable even though he did not know anything of the agents' doings. The probability of the costs of
outsourcing increase dramatically for the principal. He thus needs an incentive to do so e.g. the
assurance, or better yet, a contract that states he will not lose his job if a corrupt exchange gets
discovered in his bureaucratic unit – as long as the principal has not recklessly or consciously
supported the corruption.
If we look at the outsourcing process in detail we see that the principal faces costs though. These
are the costs to include the public in the monitoring process, that is to make the information
available that they need in order to monitor effectively. I call them the transparency costs; they
resemble the everyday transaction costs that occur in traditional principalagentrelation These
costs would occur regularly with each bureaucratic transaction that needs to get monitored and
23
could thus be minimized if automated. But there is no way to eradicate them ultimately.
A rational principal who assigns the highest utility to corruption fighting should nevertheless
share the monitoring of an agent with the public. This holds true due to three reasons: (1)
compared to other alternatives where traditional agents are included no agency problem and thus
no massive rise of monitoring occurs. (2) The principal can outsource some of the monitoring
costs that are not primarily related to corruption fighting too, (3) he might thus even reap
unsuspected benefits e.g. informations about the general working attitude of the agent as an
externality.
6 Critique
Even though the result of this paper seems pretty conclusively, there are some points to be
considered in future research which I excluded due to time and methodological reasons.
Downs, for instance, introduces another factor into a typical costbenefitanalysis: time. He even
assumes that the ability to eradicate systematic mistakes over time distinguishes a rational actor
from an irrational actor. If we like to model corruption and therefore corruption fighting more
precisely, we would need to include this factor into the calculations, thus adding an explicitly
strategic momentum to the dynamics of a corrupt relation. This so called trend factor seems
especially important for the analysis of the agentclientrelation. I spared out that point because it
is not directly changeable by a principal and thus not necessary for a principalfocusedapproach
to corruption fighting.
Secondly problematic is the assumption that all three and later four actors in my model are
unitary actors. Regarding for instance the prevalence of corrupt networks in the postcommunist
states in Eastern Europe (Karklins 2005), a model that incorporates the dynamics within these
networks is duly necessary.
Thirdly problematic is the application of my model from a more general point of view: the
transformation of the result into practical strategies. There are not only great differences in the
specific institutional and cultural setup between the countries regarding corruption (Alemann
2005), moreover there are detailed practical questions that needed to be answered before applying
the proposed strategy, such as: How could a bureaucracy make their documents available to the
public? How shall be dealt with the need for privacy of the clients?
24
7 Conclusion
It has been the aim of this paper to propose an anticorruption strategy, based on Rational Choice
reasoning, that principals could use in a bureaucracy. In order to that I needed to amend and
abolish some of the main assumptions of the Downs'ian model. Especially the separation
between a politeconomic sphere and the rest regarding an actors' rational behaviour is not
applicable to the phenomenon of corruption. Furthermore, I used a principalagentapproach to
model a corrupt exchange and showed that the basic corruption calculus for an actor needs an
additional PTerm for the costs.
Thereafter I analysed the costs, benefits and probabilities involved in a corrupt exchange
regarding the principals' capability to change them in order to fight corruption. It is hard to
increase the costs without facing severe agency problems and new monitoring costs by
introducing new agents. The benefits of the client can hardly be changed too without redesigning
the whole institutional setup of the bureaucratic unit and without facing a costcircle. Contrarily,
the benefits of the agent can be influenced by the principal without any further costs except the
costs of a payment rise that would be necessary.
The probability of the, in this respect closely linked, costs and benefits can be altered
nevertheless. A principal needs to make the information available to the public which is
necessary to monitor the agent. The public will do so because it has got a preference to monitor
the agent as well. For the principal no other costs occurred except the transparency costs – but
only as long as we assume that the principal prefers corruption fighting to other modes of action.
Thusly the Rational Choice approach proved to be a useful tool to devise an anticorruption
strategy for the microlevel. But empirical testing of the main results of this paper would be
desirable to further validate the righteousness of the proposed strategies.
25
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Asseveration
Ich versichere, dass ich diese Seminararbeit ohne Hilfe Dritter und ohne Benutzung anderer als
der angegebenen Quellen und Hilfsmittel angefertigt und die den benutzten Quellen wörtlich
oder inhaltlich entnommenen Stellen als solche kenntlich gemacht habe.
Diese Arbeit wurde in gleicher oder ähnlicher Form noch in keinem anderen Seminar vorgelegt.
Mannheim, den 4. Mai 2009 Unterschrift
Rico Grimm