When opportunities for corrupt earnings rise, is there more corruption? This fundamental question is the subject of new, frontier-pushing research by two young stars of development economics: CGD alumnus Sandip Sukhtankar and his co-author Paul Niehaus. I was delighted to learn this week that their work (ungated) just won this year’s American Economic Association prize for best economic policy paper.
When officials can earn more from corrupt acts, you might expect there to be more corruption. But wait: Suppose that corrupt acts are risky and if you get caught you’re out of the game. In that case, greater opportunities for corrupt acts might reduce corrupt behavior going forward. The bigger pie makes officials want to get their slice, but to do that they need to take fewer risks to stick around longer. Sandip and Paul call this the “golden goose” effect, after the fable discouraging myopia. In economics these countervailing forces are called the “substitution effect” and the “income effect.” This might seem like mere speculation; Sandip and Paul have shown that—at least in India—it really happens.
They study India’s National Rural Employment Guarantee Scheme, a vast program that guarantees some minimal employment to jobless people in the countryside. Because the wages must travel from the central government all the way to rural workers, there are ample opportunities for skimming. Sandip and Paul show that when the scheme’s wages rose, the greater opportunities for skimming actually caused less skimming. They show this “golden goose” effect by comparing projects affected by the wage hike to similar but unaffected projects. Among other things they had to do prodigious data collection: they ingeniously scraped a massive dataset from a public website that was set up to release data about payments for individual projects, one project at a time. They then compared the scraped data to their own survey data on how much workers had actually received to measure how much money had been skimmed between the original project design and the actual delivery.
I’m proud that Sandip is one of several people who, after working here at CGD as research assistants or in other junior staff positions, have gone on to become prominent academic researchers. Amar Hamoudi, now of Duke University, helped to lay the organization’s foundation when it launched in 2001. Jessica Gottlieb of Texas A&M was once a junior staffer on the CGD health team, among other things writing for the major book Millions Saved. Three of my own former research assistants at CGD are now successful academics: Samuel Bazzi of Boston University, Rikhil Bhavnani of the University of Wisconsin-Madison, and Bilal Siddiqi, who just joined the World Bank’s superb Development Economics Research Group. Many other former junior staffers here are also stars outside of academia. One of CGD’s most precious assets is our ability to attract brilliant young people like these.