Risk attitude, beliefs, and information in a Corruption Game – An experimental analysis
Highlights
► Experiment on corruption as a multi player coordination game. ► Participants can coordinate either towards corrupt or honest behavior. ► Risk attitudes concerning punishment in case of detection fail to explain behavior. ► Beliefs concerning the honesty of other participants predict the observed behavior. ► Increasing uncertainty by reducing transparency of others’ honesty reduces corruption.
Introduction
The importance of understanding corruption as an area of social behavior is widely accepted. Nearly all studies on institutional corruption show that the structures of governmental institutions and political processes are important determinants of the level of corruption (Shleifer & Vishny, 1993).
Various models have been designed to analyze different aspects of corruption (Andvig and Moene, 1990, Groenendijk, 1997, Lui, 1986, Rose-Ackerman, 1975). Using the principal-agent theory, the models provide insight into the relationships between participants engaging in a corrupt act under different assumptions, such as asymmetric information and the various types of costs involved. Andvig and Moene (1990) modeled corruption as a multiplayer coordination game in which public officials can choose between a corrupt or an honest strategy. In this model, the number of other public officials choosing the same strategy affects each player’s best response. For the briber, the profit expected from engaging in corrupt behavior depends on the number of dishonest public officials. The more dishonest public officials there are, the higher the payoff for the briber and the lower the probability is of being caught in corrupt transactions.
In our study, we assumed a common situation of corruption in which several public officials were faced with the decision of whether or not to accept bribes. We use the general definition of corruption for our model, which is that “… corruption refers to acts in which the power of public office is used for personal gains in a manner that contravenes the rules of the game” (see Jain, 2001, p. 73). Following the theoretical explanations of Andvig and Moene (1990), we configured this situation as a coordination game in which the acceptance of bribes leading to a higher payoff was connected to the risk of being caught. To represent this risk, we introduced a government agency charged with the responsibility of uncovering corrupt public officials. However, due to the agency’s assumed budgetary constraints, the number of corrupt public officials is inversely proportional to their individual probabilities of being caught. In other words, if there are more corrupt officials, the chances of being detected are lower and vice versa. In this kind of scenario, it might be rational for a profit maximizing public official or utility maximizing agent to act in a corrupt manner (Tirole, 1996).
Typically, the probability of being caught after a corrupt act is unknown, hence the situation is not only risky but also subject to uncertainty (see Lippman, McCall, Kenneth, & Michael, 1981). Cadot (1987) showed that risk is a parameter of the decision to engage in corrupt acts; accordingly, we elicited the risk attitudes of the players in our experiment by using lottery choices. Assuming fixed government anti-corruption expenditures, we then modeled risk as a dynamic parameter depending on the overall number of players choosing the same strategy, thereby introducing elements of strategic uncertainty. Having set this groundwork, we then studied the relationship between risk and uncertainty by comparing the players’ lottery choices with their strategic behavior in the coordination game. Neumann and Vogt (2009) demonstrated that the players’ beliefs seemed to be a better predictor of their decisions in a coordination game than risk attitude alone. Therefore, we elicited the players’ beliefs and analyzed whether they predicted their behavior in the Corruption Game accurately.
Increasing the availability of information on corruption has been shown to reduce corrupt behavior greatly (Reinikka & Svensson, 2004). In our experiment, we chose to not just increase the amount of information regarding corruption but also to vary the amount with respect to the probability of individual corrupt behavior being uncovered, in order to vary the degree of uncertainty.
Our analyses show that the players’ decisions were not determined by their risk attitudes, meaning that a more risk-seeking player did not necessarily behave in a more corrupt manner. On the contrary, the beliefs elicited proved to be much better predictors of behavior. With respect to corruption, our players formed subjective probabilities about the possibility of accepting a bribe successfully. Furthermore, we found that increasing the degree of uncertainty among the players by varying the information about the probabilities of successful acts of corruption resulted in a reduction of corruption. For this purpose, it was not necessary to provide information about the specific activities undertaken by the agency, but merely to convey the risk of getting caught. In our experiment, specific information about the number of those convicted of corrupt acts was not utilized by the players.
In the next section, we present our game design and theoretical predictions and in Section 3 we derive our research hypotheses. Section 4 explains our experimental design and in Section 5 we describe our results. Finally, Section 6 concludes the paper by discussing some strategic recommendations to reduce corruption.
Section snippets
Game design
In the literature, games with multiple equilibria, especially coordination games, are often used to model corruption (Andvig and Moene, 1990, Cadot, 1987). Coordination games are typical examples of uncertain situations representing the trade-off between uncertainty and outcome. In an attempt to resolve this trade-off, Harsanyi and Selten (1988) introduced the two selection criteria of risk dominance and payoff dominance. In the literature, there does not appear to be a common consensus on
Research hypotheses
The relation between risk and behavior in games has been examined in many studies (see Goeree et al., 2003, Schmidt et al., 2003, Straub, 1995). Experiments have shown that players’ risk attitudes often influence their behavior in games. According to Cadot (1987), corruption (or crime) is a lottery, and players who ask for (or offer) bribes face risks every time. Hence, we can conclude that players’ risk attitudes determine their decisions in these kinds of situations. Our first hypothesis is
The experiment
Following the description given in Section 2, we ran a neutrally framed experiment. Given that Abbink and Henning-Schmidt (2006) found no significant differences in a bribery experiment run in both a loaded and unloaded frame, we used an unloaded frame to avoid framing effects.
The literature on framing effects in corrupt interactions provides evidence for determining the degree of influence on decisions, but as far as we know, only for the briber’s behavior, not the agent’s (see Barr and Serra,
Results
In the remainder of the paper, we will first analyze the lottery choices in order to relate the players’ risk attitudes to their behavior as observed in our Corruption Game, as well as in our Modified Corruption Game. Afterwards, we examine the players’ expectations regarding each other’s behavior.
Conclusion
This study was motivated by the desire to investigate the effect of different degrees of uncertainty on players’ decisions in an environment of corruption. At the same time, we also wanted to find out whether the players’ risk attitudes or beliefs determined their decisions in a game.
Using the common definition of the two kinds of uncertainty, we were able to compare our players’ decisions in risky situations with their decisions in situations with different degrees of uncertainty. We designed
Acknowledgements
We are grateful to two anonymous referees and an associate editor for their comments and suggestions. We thank Eike B. Kroll and Peter Martin for their comments, as well as the participants of the Economic Science Association – European Meeting 2009, the 7th Annual Conference of the German Law and Economics Association and the 4th French-German Talks in Law and Economics 2009 for their useful comments on how to sharpen the focus of the paper.
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