Guido de Blasio, Alessio D'Ignazio, Marco Letta, 27 November 2020

The use of artificial intelligence in preventing crime is gaining increasing interest in research and policymaking circles. This column discusses how machine learning can be leveraged to predict local corruption in Italy. It highlights how such algorithmic predictions could be employed in the service of anti-corruption efforts, while preserving transparency and accountability of the decisions taken by the policymaker.

Erica Bosio, Simeon Djankov, Edward Glaeser, Andrei Shleifer, 05 November 2020

Discretion in public procurement allows public officials to pursue socially and economically optimal procurement outcomes, but it also increases the possibility of corruption. This leads to a trade-off between allowing greater discretion and preventing corruption in public procurement. Using survey data on public procurement law and practices from 187 countries in 2019, this column investigates this trade-off. It finds that regulation is helpful when government efficiency is low, and harmful when it is high.

Fernando Arteaga, Desiree Desierto, Mark Koyama, 25 October 2020

The Spanish Crown had a monopoly on the trade route between Manila and Mexico for more than 250 years. The ships that sailed this route were “the richest ships in all the oceans”, but much of the wealth sank at sea and remain undiscovered. This column uses a newly constructed dataset of all of the ships that travelled the route to show how monopoly rents that allowed widespread bribe-taking would have led to overloading and late ship departure, thereby increasing the probability of shipwreck. Not only were late and overloaded ships more likely to experience shipwrecks or to return to port, but the effect is stronger for galleons carrying more valuable, higher-rent cargo. This sheds new light on the costs of rent-seeking in European colonial empires.

Katie Parry, Oriana Bandiera, Michael Best, Adnan Khan, Andrea Prat, 13 May 2020

Weak procurement systems can lead to high wastefulness and reduce the amount of resources government have for vital expenditures. This column examines the behaviour of 600 procurement officers in Pakistan and finds that the savings realised through giving them greater autonomy were considerably greater than from pay-for-performance incentive schemes, though this result did depend on the relative efficiency of the procurement officers and their monitors. This finding indicates that, counter-intuitively, the appropriate response to inefficiency and corruption may sometimes be less monitoring, not more.

Maurizio Bussolo, Francesca de Nicola, Ugo Panizza, Richard Varghese, 28 February 2020

Firms can use political connections to gain an unfair advantage in resource allocation, such as easier access to credit. This column examines around 460,000 firms from six central and eastern European economies and shows that political connections ease credit constraints, distort capital allocation, and may have large welfare costs. Connected firms do not always borrow to invest and, when they do invest, they are likely to misallocate capital.

Ishac Diwan, Jamal Ibrahim Haidar, 18 January 2020

Firm-level political connections are widespread. This column examines whether they affect employment decisions in Lebanon, a country where the majority of university students think that connections are important for finding jobs and many admit to having used them. While politically connected firms create more jobs than unconnected firms, the presence of such firms in a sector is correlated with lower aggregate job creation. This finding is consistent with the hypothesis that unfair competition from politically connected firms hurts unconnected competitors so much that aggregate growth in the sector is affected negatively.

Litterio Mirenda, Sauro Mocetti, Lucia Rizzica, 26 October 2019

The expansion of organised crime generates losses in economic growth and social welfare. This column estimates the impact of mafia penetration in the legal economy in Italy, looking both at the micro-level effects on firms infiltrated by 'ndrangheta members and at the more aggregate long-run effects on local economic growth. It finds that infiltrated firms are disproportionately in the utilities and financial services sectors and that infiltration has a strong negative effect on local long-term employment growth. 

Emanuele Colonnelli, Mouno Prem, Edoardo Teso, 08 September 2019

To protect public sector jobs from becoming instruments of political patronage, employment decisions must be governed by impartial, meritocratic hiring practices. But in many civil service systems, politicians retain broad discretion in personnel decisions. This column looks at hiring practices in Brazil, and finds that not only are public sector careers handed out to the most devoted campaign supporters rather than the most competent applicants, but that political connections aid the least capable applicants most.

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Core Conference 2019:

In the 30 years since the fall of the Berlin Wall and the Iron Curtain, the former planned economies in East Germany and Eastern Europe have undergone fundamental processes of change. In the new federal states, the economic structure has undergone fundamental changes, but convergence with the old federal states is not complete. The economic catching-up process of the transition countries of Eastern Europe, some of which are now members of the European Union, is continuing. Where are East Germany and the transition countries today? How have democratic institutions and market-economy structures developed in the transition countries?

Guo Xu, Marianne Bertrand, Robin Burgess, 14 April 2019

How the personnel of the state perform is likely to have important implications for its effectiveness and economic performance. This column combines administrative records with survey data on the performance of Indian Administrative Service officers to examine how social proximity affects bureaucrat performance. The results suggest that officers allocated to their home state perform worse than comparable officers who are allocated to non-home states.

Simone Moriconi, Giovanni Peri, Dario Pozzoli, 24 February 2019

Firms’ offshoring decisions depend on the size of entry costs in target countries. But the institutional and policy determinants of these costs have received little empirical attention. This column uses data on 2,000 Danish manufacturing firms to explore how costs of entry affect offshoring decisions. Higher levels of labour market rigidity, credit risk, and corruption all lower the probability of offshoring to a given country, while immigrant networks within the firm increase the likelihood of offshoring to their home countries. 

Ufuk Akcigit, Salome Baslandze, Francesca Lotti, 30 November 2018

Corruption, especially rent-seeking behaviour by politicians and firms, has adverse consequences for competition and ultimately growth. This column explores how political connections influence firms’ outcomes in Italy. The results point to a ‘leadership paradox’, whereby market-leading firms are more likely to be politically connected than their competitors, but less likely to innovate. At the aggregate level, political connections tend to be associated with worse industry dynamics, including lower entry, reallocation, growth, and productivity.

Tim Jackson, Laurence Kotlikoff, 30 August 2018

Financial crises have historically been triggered by news of financial malfeasance. Some economists advocate greater opacity for bankers to ensure investors keep the faith. This column models bankers as including a share of malfeasants who steal or lose investors’ money. Within this framework, deposit insurance makes matters worse and private monitoring fails due to free riding. The optimal policy is identified as full financial disclosure, which weeds out crooked bankers. 

Mariassunta Giannetti, 02 August 2018

Some economists argue that corruption can contribute to economic growth by bypassing red tape and financing issues. Using data from China's anti-corruption campaign in 2012, Mariassunta Gianetti shows that small, young - and potentially more productive - firms tend to perform better when corruption is cut. This video was recorded at CEPR's Third Annual Spring Symposium.

Audinga Baltrunaite, Cristina Giorgiantonio, Sauro Mocetti, Tommaso Orlando, 26 July 2018

Public procurement outcomes crucially depend on the ability of the procuring agency to select high-performing suppliers. This column uses Italian data to explore how public administrator discretion affects public resource allocation. Greater discretion results in reallocation towards politically connected, low-performing firms. These adverse effects are driven by lower-quality procuring agencies.

Rui Esteves, Gabriel Geisler Mesevage, 06 April 2018

The social costs of corruption in government have made policies to reduce it a priority. This column uses the example of the expansion of the British rail network in the 1840s to show that conflict-of-interest rules and transparency requirements are insufficient to prevent corruption. Faced with a major administrative reform to insulate the provision of public infrastructure from private interests, MPs traded votes to ensure their interests prevailed.

Daron Acemoğlu, Giuseppe De Feo, Giacomo De Luca, 02 March 2018

The Mafia is often cited as one of the main reasons why Sicily has lagged behind the rest of Italy in economic and social development. This column describes how in an environment with weak state presence, the socialist threat of Peasant Fasci organisations at the end of the 19th century induced landholders, estate managers, and local politicians in Sicily to turn to the Mafia to resist and combat peasant demands. Within a few decades, the presence of the Mafia appears to have significantly reduced literacy, increased infant mortality, limited the provision of a variety of local public goods, and may also have significantly reduced local political competition.

Chen Lin, Randall Morck, Bernard Yeung, Xiaofeng Zhao, 22 December 2017

Chinese stocks rose sharply overall on news of President’s Xi’s 2012 policy cracking down on corruption, but non-state-owned enterprises in the country’s least liberalised provinces actually lost value. This column argues that China has taught the world something interesting – that prior market liberalisation makes anticorruption reforms more valuable. Once market forces are activated, bribe-hungry officials no longer grease the wheels but instead become pests and invite eradication.

Mariassunta Giannetti, Xiaoyun Yu, 30 October 2017

One of Chinese President Xi Jinping’s defining policies has been in the fight against corruption, which hinders innovation and growth by creating privileges for established firms. This column shows that extensive corruption in China may indeed have hampered the process of firm progress, and that the anti-corruption campaign has been a good move towards favouring an efficient allocation of resources and, ultimately, sustained growth.

Jan Hanousek, Anastasiya Shamshur, Jiri Tresl, 29 October 2017

The idea that corruption hinders investments is not new, but the literature has tended to focus on the impact of average corruption levels. Based on 140,000 firm-level observations for 13 Central and Eastern European countries, this column explores the impact of corruption uncertainty. The evidence suggests that while foreign-controlled firms are unaffected by the corruption uncertainty factor, domestic firms decrease investments significantly when uncertainty about corruption practices increases. This decrease in investment is accompanied by a decrease in cash holdings, which points to a possible motive to build off-balance sheet funds for bribery purposes.

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