Lobbying and Corruption Dr James Tremewan (james.tremewan@univie.ac.at) Corruption Laboratory Experiments
Introduction Design of Laboratory Experiments • Today we will discuss three issues related to laboratory experiments on corruption: • Whether to repeat interactions, and if so, whether the groups stay the same or change. • Framing (placing the strategic decision in a particular context through labeling players or actions, e.g “Politician” instead of “Player A”). • Do laboratory experiments really evoke attitudes towards corruption? 2/31
Introduction Repeated Games • In many experiments subjects play a game only once (”one-shot”). • Much experimental theory is about a one-shot interaction. • Abstracts from complications with repeated interactions. • However, we may want to have subjects play more than once: • Learning: • To allow subjects to become familiar with the environment (understanding the game, or learning about the behaviour of others). May want to compare experienced and novice subjects. • Studying the learning process itself. • To study issues like reputation and reciprocity. • Lobbying and corruption can occur in both one-shot and repeated environments: • One-shot: city competing to hold the Olympic games, application for electoral roll. • Repeated: health inspections of restaurants, defence contracts. 3/31
Introduction Stranger or Partner Matching? • There are two basic alternatives when subjects play repeatedly: • Stranger matching: each subject plays with a different person each time. • Partner matching: subjects play repeatedly with the same person. • Stranger matching: • Often regarded as multiple one-shot games, so used for studying pure learning/experience effects. • Subjects may be re-matched with people they have played before, but anonymity means they will not know for sure. ”Absolute/Perfect stranger matching”: subjects only play each other once (and know this). • Some evidence that subjects may not view random stranger matching as one-shot (e.g. Botelho et al, 2005). • Partner matching: • Studying role of reputation or reciprocity. 4/31
Staff rotation as an anti-corruption policy Staff rotation as an anti-corruption policy • “Staff rotation as an anti-corruption policy: an experimental study”, Klaus Abbink (2004), compares stranger and partner matching treatments of a corruption game to examine the effectiveness of staff rotation in reducing corrupt behaviour. • Staff rotation has been used to reduce corruption (e.g. in public procurement for the German federal government). • Advantages: • Public officials may be less influenced by gifts if they are unlikely to interact with the giver again (no chance of further gifts). • Potential bribers anticipate this, so are less likely to bribe. • Potential bribers may be more worried about being reported if they have not had experience with a particular official before. • Problems: • Reciprocity may mean that officials are influenced by gifts even in one-shot intereactions. • Costs: officials would frequently need to learn new routines, new cases, new clients, etc. Loss of specific knowledge. 5/31
Staff rotation as an anti-corruption policy Corruption Game • Scenario: a firm wants to run an industrial plant which causes negative consequences to the public (e.g. pollution). A public official must decide every period whether to give permission. • Two-player game (framed neutrally in instructions): • Firm chooses whether or not to offer a transfer (there is a small cost for making an offer). • Public official chooses whether or not to accept, and also whether to refuse or grant permission. The transfer is multiplied by three: small cost to the firm, but big money to public official. • If permission is granted, all other subjects in the experiment lose some points (social cost of corruption). • If corruption takes place there is a small probability that the two players get caught and lose all money from game. • Subjects play 30 rounds with either partner or stranger matching. • Subgame equilibrium: no bribe ever offered (In last round, public official will always refuse permission, so no reason to offer bribe.... unravels as with repeated prisoners’ dilemma). 6/31
Staff rotation as an anti-corruption policy 7/31
Staff rotation as an anti-corruption policy 8/31
Staff rotation as an anti-corruption policy 9/31
Staff rotation as an anti-corruption policy Evolution of permission frequencies 10/31
Staff rotation as an anti-corruption policy 11/31
Staff rotation as an anti-corruption policy Permission frequencies depending on transfer 12/31
Staff rotation as an anti-corruption policy Conclusions • In this experimental environment, staff rotation was effective in reducing corrupt behaviour: • Bribes less likely to be offered. • Bribes of all sizes less likely to influence the official. • The average bribe was reduced by half. • Average frequency of inefficient decision reduced by 2/3. 13/31
Framing Framing • Most economic experiments are done without context (a ”neutral frame”), e.g. choose option A or B, rather than ”cooperate” or ”defect.” Remember: lab experiments are not about re-creating reality! • This is done to retain generality, avoid inducing particular behaviour because of connotations of words, or ”role-playing.” Traditionally economic theory has held the view that arbitrary labels should not matter. • However, researchers may use framed experiments if they are interested specifically in the effects of context. • Also, in some instances, not framing experiments can lead to a loss of control: subjects may apply their own context to help understand an abstract situation, and if different subjects apply different contexts there will be uncontrolled heterogeneity. 14/31
Framing Framing • Sometimes framing matters and sometimes it doesn’t. We will look in detail at two papers. • Neutral versus loaded instructions in a bribery experiment , Abbink and Hennig-Schmidt (2006). • Finds no effect of framing in corruption experiment. • The effects of externalities and framing on bribery in a petty corruption experiment , Barr and Serra (2009). • Finds a significant effect of framing in a similar environment, and suggests why the result differs from the previous paper (role-playing). 15/31
Framing Abbink and Hennig-Schmidt (2006) • Same game as Abbink (2004). • Two-player game, framed (neutral): • ”Firm” (”player 1”) chooses whether or not to offer a ”private payment” (”transfer”). • ”Public official” (”player 2”) chooses whether or not to accept, and also whether to ”grant permission” (”choose Y”) or ”not grant permission” (”chose X”). • If permission is granted, all other subjects in the experiment lose some points (social cost of corruption). • If corruption takes place there is a small probability that the two players lose all money they could have earnt from the experiment. • Subjects play 30 rounds with the same partner (long-term relationship). 16/31
Framing • Hypothesis: framing in morally negative context of corruption highlights negative consequences of decisions and should reduce corrupt behaviour. 17/31
Framing 18/31
Framing 19/31
Framing Results • Average bribe offer: 2.56 (framed), 2.93 (neutral). Not significantly different (Mann-Whitney-U test applied to average offer in each pair, 18 in each treatment, one-sided p-value=0.39.) • Permissions given: 32.4% (framed), 43.3% (neutral). Not significantly different (Mann-Whitney-U test applied to average in each pair, 18 in each treatment, one-sided p-value=0.27.) • Bribes accepted: 21.3% (framed), 12% (neutral). Not significantly different (Mann-Whitney-U test applied to average in each pair, 18 in each treatment, one-sided p-value=0.34.) • Authors’ conclusion: no evidence of strong framing effect. Game design already transmits all essential features of bribery situation. 20/31
Framing Barr and Serra (2009) • Similar set-up to Abbink and Hennig-Schmidt. • Major differences: • Briber is labeled ”private citizen” instead of ”firm.” • If bribe is accepted, service is given automatically (only one choice for public official). • Negative impact of corruption affects inactive players. • One-shot game. • Game designed to represent ”petty” corruption, e.g. bribing doctor to get treated immediately. • 2x2 design: framed/neutral and low/high negative externality on ”other members of society.” • sL = neutral treatment, sH = framed treatment. 21/31
Framing Corruption Game • Two active players: • Private Citizen chooses whether or not to offer a transfer (there is a small cost for making an offer). • Public Official chooses whether or not to accept. • If bribe is accepted, five inactive subjects (called “Other Members of Society” in framed sessions) in the experiment lose some points (social cost of corruption). • If corruption takes place there is a small cost to the official, representing the risk of getting caught (cost is deterministic to reduce uncontrolled heterogeneity due to risk aversion - less “realistic” but better experimental control!!!). • Subgame perfect equilibrium: • All Private Citizens offer slightly more that the cost to the Public Officials from accepting. • Public Officials accept. 22/31
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