IBUS Exam 1 Part 2

Is corruption more common in gift-giving cultures?

"Distinguishing the two 'means identifying as immoral or criminal a subset of transactions and relationships within a set that, generally speaking, is fundamentally beneficial to mankind, both functionally and intrinsically." Boils down to the notion of reciprocity Corruption is lower in cultures with higher trust "If, to a large extent, bribery involves 'illegitimate' exchange, its prevalence can come to undermine faith in the legitimate trade of gifts or favors. That is, if there's always a catch, you begin to question the motives behind supposedly innocuous offerings, and perhaps wonder whether reciprocity is such a great system more broadly." No, corruption is not more common in gift-giving cultures.

How do cultures of corruption propagate themselves?

"Everyone's doing it" bandwagon idea is how NYPD justified their corrupt behavior during Frank Serpico's time Organizational culture can be why people want to join During the 50s and 60s, people become cops because they knew of the bribery and money-making schemes Same applies with the dice experiment in Bangladesh Participants were told that they'd get paid based on how high their rolls were, so they were much more likely to cheat

How do people respond to incentives? examples

- Day care incident: price for children to stay slightly went up, and parents didn't mind paying because it was a minor cost - Bagel experiment: Paul Feldman bringing bagels to offices in Washington. No one will know if I take a bagel without paying, so what's the harm? There was a 5% drop in theft after 9/11

What is meant by a culture of corruption?

A culture of corruption is the cultural practice wherein bribes and other material exchanges routinely take place to expedite a transaction or to benefit both parties. "Bribe paying clearly consisted of stable and mutual expectations of what to do at a highway checkpoint: pay the bribe. It's what we'd call a culture of corruption."

Examples of corrupt behavior

Bribery (generally the most common form of corruption and of our focus) Extortion, fraud, embezzlement, cronyism Misuse of government funds

Bribes vs. tips through the lens of Agency Relationships

Bribes undermine the principal's objectives whereas tips reinforces the principal's objective of achieving the optimal performance

Anti-bribery Efforts

FCPA, 1977 U.K. Bribery Act of 2010 Brazil has passed a new law and is using it to go after firms caught up in the Petrobras scandal China's anti-corruption drive under Xi Jinping (General Secretary of the Communist Party of China) A new controversial anti-corruption bill in South Korea took effect in 2016 To root out bribery, the bill forbids people from buying a meal worth more than $27 public officials, state-run company employees, journalists, and school teachers Also limits gifts to $45 and donations to $90 Mexican National Anti-Corruption System (NAS) created in 2015 to fight corruption in Mexican business and politics Ratified in 2015 Stricter than FCPA; doesn't permit facilitation payments whatsoever According to recent report, this law has been hindered by lack of political will to give the system the resources and independence it needs to be fully effective The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD, 1977) adopted by OECD member states to make the bribery of foreign public officials a criminal offense 44 signatory countries including 8 non-OECD members (as of today) Around half of signatories to OECD's anti-bribery convention have yet to impose any sanctions In 2005, the United Nations Convention Against Corruption entered into force 140 signatories Only legally binding international anti-corruption instrument

What are some existing national and international anti-bribery laws/conventions?

FCPA, AACA

Grand vs. petty corruption

Focus is on the scale of corruption Grand occurs when private actors interact with those in the highest levels of government, thus sometimes called high-level corruption Involves decisions such as procurement of military equipment, infrastructure projects, or policy decisions about the allocation of credit or subsidies Petty occurs when private actors interact with non-elected officials, particularly low-level bureaucrats at a smaller scale (also called bureaucratic corruption)

Public vs. private corruption

Focus is on who gains from illicit activity Public occurs when an elected politician or civil servant obtains a personal benefit (in exchange for giving a company/individual a good or preventing a bad) Private occurs when a manager of a company obtains a personal benefit (in exchange for giving another company a personal benefit)

Why did some firms pay a bribe to the Iraqi government? What factors influence firms paying bribes abroad?

Had firms not paid the surcharge, their access to Iraqi oil would have been cut off Factors include access to the product being withheld and the cost of the product The more privately-owned the firm, the more likely they are to pay the bribe

Foreign Corrupt Practices Act

In the 1970s, the U.S. passed the FPA following revelations that U.S. companies had bribed government officials in foreign countries in an attempt to win lucrative contracts This law makes it illegal to bribe a foreign government official (for foreign political party or candidate for foreign political office) to obtain or maintain business over which that foreign official has authority This law applies to U.S. citizens, business entities, and their subsidies as well as all issues of securities on any U.S. exchange, including any foreign company and its employees which files quarterly and annual reports with the SEC Establishes penalties of fines up to $2M for firms and $100,000 for individuals as well as up to 5 years in prison for individuals 1998 Amendment: facilitation payments (the payment that is not intended to influence the outcome of the official's action, only its timing) are one of the few exceptions from anti-bribery prohibitions of the law Both the U.S. law and OECD convention allow for exceptions known as facilitating or expediting payments (also called grease payments or speed money), the purpose of which is to expedite or to secure the performance of a routine governmental action

Bribes, prices, gifts, and tips

Legal rules and cultural norms help assign transactions to one or another category, but the standards are not fixed across either time or space There are many borderline cases so that categorizing a particular payment as corrupt may differ across cultures and legal systems Cultural or social practices can vary not just across countries but within countries and regions as well

Multiple Dimensions of Corruption

Legal, ethical, practical

Does our perception on corruption tell actual corruption? Why, why not?

No, it doesn't: "firm heterogeneity within a country could explain [the] finding of statistically insignificant effects of corruption perception on actual bribery"

Two types of corruption

Public vs. private corruption (with focus on who gains from illicit activity) Grand vs. petty corruption (with focus on the scale of corruption)

Can we change individual attitudes toward corruption?

People are more likely to adapt to the practice of bribery than the practice of legal exchanges. Westerners understand that it's just the way of life in other countries. This is where diplomatic immunity serves as a great example "Many of the worst offenders also fare poorly in the Corruption Perceptions Index rankings: Egypt, Chad, Sudan, Bulgaria, Mozambique, Angola, Senegal, and Pakistan fill out the bottom rankings for unpaid tickets... many missions with spotless records were from low-corruption countries like Canada, Norway, and Sweden."

Is corruption more prevalent among members of some religious groups than others?

Secular societies tend to be more wealthy, so given the link between wealth and corruption, more religious societies tend to be more corrupt However, at the individual level, religion is associated with less corruption: "the regular church attendee is less likely to report paying bribes than the nonreligious one... religion, then, does seem to produce or attract those who are less apt to engage in corruption (or at least less likely to tell a survey taker that they do)" Are some ethnic groups predisposed to corruption? No, there is no conclusive evidence to prove this.

What is meant by a culture of corruption?

Tend to be (relatively) more tolerant about bribe giving and taking and, Have a mutually consistent reinforcing set of norms about bribery

Agency Relationship

The agency relationship is created when one (the agent) through a contract, agrees to work in favor of another (the principal) in return for incentives (often financial) The principal delegates authority to an agent on behalf of the principal The agent on behalf of the principal is supposed to pursue the principal's best interests and interact with third parties

Bribes vs. tips

These payments are made as part of an exchange relation Both are informal payments Neither can demand for legal enforcement if a payer does not pay In many societies, the sizes of these payments can be similar, are often made in cash, and both supplement the wages earned by those in low-paid positions

Agency Relationship and the Principal Agent Problem

This problem is created when the agent pursues his/her own interests due to information asymmetry instead of pursuing the principal's best interests Creating a mixture of incentives that can align the interests between the two parties becomes critical for the principle to achieve the optimal performance

How do people get what they want, or need, especially when other people want or need the same thing?

Through incentives (economic, social, and moral)

What was the nature of corruption during the UN Oil for Food Program?

UN-imposed sanctions meant to deprive Iraqi government of funds, but Iraq evaded sanctions by requesting illegal surcharges from companies seeking oil export contracts "Circumvention of UN sanctions through the 'Saddam Bribery System' of oil allocations was widespread, and later became the subject of official inquests, which produced detailed investigative reports"

What happened with Walmart?

Walmart paid $24 million in bribes to expedite building of new Walmart stores in Mexico, an emerging market

Bribes vs. other forms of giving

We can categorize different types of payments (in money or in kind) along two key dimensions First, does an explicit quid pro quo actually exist? Gifts don't explicitly imply reciprocity The second dimension considers the institutional positions of payers and payees: are they agents or principals? A restaurant bill is paid to the owner whereas a tip is paid to the waiter

corruption

the abuse of public power for private gains