NCPA - National Center for Policy Analysis


July 24, 2006

What causes corruption?  Many economists believe that corruption is a response to perverse incentives.  For example, in Indonesia it takes 151 days to legally establish a small business.  This is a large incentive to pay bribes or keep a business unregistered, says Tim Harford, author of "The Undercover Economist."

It is not surprising that there is a strong correlation between red tape and corruption.  In general, the harder it is to make money legally, the more tempting it will be to do so illegally; and if people are not punished for stealing, then they will be more likely to steal, says Harford.

Ray Fisman and Edward Miguel realized that diplomats in New York City are the perfect guinea pigs to study corruption.  Diplomatic immunity meant that parking tickets issued to diplomats could not be enforced, and so parking legally was essentially a matter of personal ethics:

  • Countries with corrupt systems, as measured by Transparency International, also sent diplomats who parked illegally.
  • From 1997 to 2005, the famously incorruptible Scandinavians committed only 12 unpaid parking violations, and most of them were by a single criminal mastermind from Finland.
  • Over the same period of time, Chad and Bangladesh, regularly at the top of the corruption tables, managed to produce more than 2,500 violations between them.

Perhaps poor countries are poor because they are full of corrupt people, after all, says Harford, however:

  • In 2002 the Clinton-Schumer Amendment gave New York City much greater power to punish diplomatic parking violations.
  • Cars were towed, permits suspended, and fines collected from the relevant foreign-aid budget.
  • Unpaid violations immediately fell 90 percent.

When it comes to parking violations, personal morality matters, but incentives matter more, says Harford.

Source: Tim Harford, "Are some people naturally corrupt?  Maybe, but incentives may trump lack of personal morals," Dallas Morning News, July 23, 2006; based upon: Ray Fisman and Edward Miguel, "Cultures of Corruption: Evidence from Diplomatic Parking Tickets," Bureau for Research in Economic Analysis of Development, Working Paper No. 122, May 2006.


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