Advances in Measuring Corruption in the Field

Sandra Sequeira
London School of Economics
February 2012

This chapter critically surveys recent advances in the methodology of measuring

corruption in the field. The issue of measurement is central in the corruption
literature, and the choice of method can significantly influence our thinking
about the determinants, the mechanics and the impact of corruption on the
economy. We provide a conceptual categorization of different methods of measuring corruption ranging from surveys to direct observation of bribe payments
in the field, while discussing the methodological and conceptual advantages and
disadvantages of each method. Finally, we highlight areas of complementarity
across methods and discuss avenues for future research.

I. Introduction

Corruption is still considered one of the most challenging obstacles to economic development and growth. The World Bank estimates that over one trillion dollars are paid in bribes
worldwide and that 25% of African states GDP is lost to corruption each year (World Bank
Institute).
At the same time, there is a growing understanding of how corruption can distort business activity, reduce investment, dampen the intended effect of policies and hinder the
functioning of institutions. The government of Indonesia estimates that lost forest revenue
due to corruption in the management of natural resources is costing the country up to US
$4 billion a year, or around five times the annual budget for the Indonesian department
of health (UNDP Report, 2008). The cost of corruption can also be high if it prevents
an efficient and equitable delivery of public services. According to Transparency International, corruption raises the price paid for connecting a household to a water network in
the developing world by as much as 30%. This is estimated to inflate the cost of achieving
the Millenium Development Goals on water and sanitation by more than US $48 billion, or
nearly half of the annual global aid outlays (Transparency International, Global Corruption Report 2008). In graft-addled public bureaucracies, it is estimated that over 50% of
allocated government funds do not reach clinics and hospitals (Transparency International,
2006 Global Corruption Report). As a result, corruption continues to figure prominently in
the policy and development agenda, conditioning international aid and driving governance
reform programmes worldwide. The World Bank alone has implemented more than 600
anti-corruption programmes since 1996.
Two decades of extraordinary developments in the breadth and depth of research on
corruption were triggered by this growing realization of the political, economic and social
costs it can impose, particularly on the poor, who are often least able to find ways to shield
themselves against corruption or to benefit from it directly. This research has sought to not
only measure the extent and prevalence of corruption, but also to understand its key determinants and implications, motivated by the need to design more effective anti-corruption
policies.

During this period, scholars have more or less converged on the overall definition of
corruption as the misuse of public resources and power for private gains (Klitgaard, 1968;
Shleifer and Vishny, 1993; Svensson, 2005) or more broadly, as the breaking of rules by
public officials, for private gain (Banerjee et al., 2011).
The primary challenge faced by scholars of corruption remains however one of measurement. Without accurate and reliable measures, the extent and magnitude of corruption
cannot be properly identified, theories of corruption cannot be meaningfully tested against
the data to help us understand the fundamentals of how and why corruption emerges, and
effective anti-corruption strategies cannot be developed, tested and adapted to different
settings. Measuring corruption remains hard for a variety of reasons. At the most fundamental level, those who are involved in corruption are actively seeking to hide their behavior
for fear of punishment or shame. Corruption can also take many forms and involve many
different types of public officials, from port workers asking for bottles of whiskey to move
containers on the docks, to a doctor stealing medicine from a public clinic or shirking his
duties and not showing up for work. Identifying the full extent of different types of corruption will often require a deep understanding of the broader institutional, social, political
and cultural context in which the corrupt behavior is taking place. Given that the choice
of measurement strategy will ultimately help shape our thinking on the very dynamics of
corruption and on where to look for its impact, it should continue to be at the forefront of
the research agenda on corruption. The main challenge is to identify objective, replicable
and yet adaptive measures of corruption, capable of capturing new developments in corrupt
behavior as they emerge.
The last decade has witnessed an unprecedented revolution in the number of different
techniques that scholars have skilfully deployed to try to measure corruption. The purpose of this chapter is to review these developments, providing a critical analysis of each
methods strengths and weaknesses. In the process, we offer suggestions on what we think
are the most important techniques that require further replication and development in the
future.2
The remainder of this article proceeds as follows. Section II begins by reviewing de2

Interested readers should also see Banerjee et al. (2011), Olken and Pande (2011) and Zitzewitz (2011)
for thorough reviews of current scholarship on corruption.

velopments in indirect measures of corruption, ranging from perception-based indices to

statistical inference approaches, while section III discusses recent advancements in pursuing direct measures of corruption. Section IV concludes by suggesting areas for future
methodological advances that can help us glean more accurate and meaningful measures of
corruption.
II. The Challenge of Measuring Corruption

Earlier research on corruption was mostly theoretical, with theories on the systemic causes of
corruption such as the distribution of power between governments and private organizations
(Leff, 1964; Huntingdon, 1968; Tullock, 1971; Scott, 1972; Rose-Ackerman, 1978; Krueger,
1974; Bhagwati, 1982), jostling next to theories that emphasized the individual incentives
for bureaucrats to engage in corrupt behavior (Hirschman, 1970; Becker and Stigler, 1974;
Klitgaard, 1988). This literature identified administrative monopoly power, bureaucratic
discretion and lack of individual accountability as the main characteristics of corruptible
environments. A limited number of case studies were able to give life to some of these
concepts. Among these, Wade (1985) provided a vivid account of an entrenched network
of bribery in irrigation schemes in India, while Klitgaard (1988) described instances of
successful anti-corruption schemes in Asia and Tendler (1993) of successful governance
reform in Brazil. These case studies provided a first snapshot of how corruption could
emerge in very specific settings. They offered both reasons for concern, since corruption
could be deeply entrenched in complex institutional and organizational networks (Wade,
1985), and for hope, since carefully planned policy interventions and institutional reform
appeared to be able to successfully reduce it (Klitgaard, 1988; Tendler, 1993).
The case study methodology, while thorough and illuminating, was however unable
to tell us how pervasive and costly corruption would be in other settings, the different
types of corruption that can systematically emerge in the economy, the determinants of
incentive-compatible institutional and organizational reform for bureaucrats who are in
principal personally benefitting from the corrupt status quo, and whether these reforms
could succeed elsewhere.

A. The Early Days: Measuring Perceptions of Corruption

The empirical research on corruption began to flourish in the 90s with the emergence of
new datasets of cross-country perception-based assessments of corruption. This was the
first attempt to identify consistent measures of a proxy for corrupt behavior, both across
time and countries.
The most widely used perception-based indices include the Transparency Internationals
Annual Corruption Perception Index (CPI), a survey of experts and public opinion on corrupt practices in over 150 countries, and the Bribe Payers Index, a survey of businessmen
and investors on the likelihood of having to pay a bribe in over 60 countries. The International Country Risk Guide (ICRG) and the World Bank Governance Indicators produce
similar yearly measures of the quality of institutions in different countries, including perceptions of the extent to which public power is exercised for private gain (including both petty
and grand forms of corruption), as well as the degree of capture of the state by elites
and private interests.3 These surveys include, among other indicators, questions about the
financial honesty of politicians, the likelihood of firms having to pay bribes to access a
variety of public services, and about the number of elected leaders who are perceived to be
involved in corruption deals.4
The new data generated important macro-level estimates of the negative impact of perceptions of corruption on growth and investment (Mauro, 1995; Knack and Keefer, 1995;
Kaufmann et al., 1999; Wei, 2000).5 Bolstered by these preliminary empirical results, the
theoretical literature of the 70s and 80s became instrumental in driving the policy push for
deregulation and privatization in the 90s and early 2000s, as a means to curtail state power
and individual bureaucratic discretion. However, the literature on corruption still lacked
the empirical evidence to justify most of the general policy action it expounded.
In fact, despite its widespread use, scholars soon began to worry about the accuracy
and explanatory power of this method of measuring corruption. From a conceptual point
of view, perception-based indices were criticized as an attempt to weld together too many
3

See Kaufmann et al. (2008) for a more detailed review of the World Bank Governance Indicators.
See Svensson (2005) for a thorough comparison between the different perception-based indices.
5
For further examples of how these indices have been used in the literature see Fisman and Gatti (2002),
Treisman (2000), La Porta et al. (1999) and Rauch and Evans (2000).
4

different types and shades of corruption under a handful of indicators, limiting the range
of questions that could be asked in the study of corruption, and providing limited support
for targeted evidence-based policy action (Rose-Ackerman, 1983). For one, different types
of corruption could be cost-increasing or cost-reducing for different types of private agents,
depending on whether they reflected instances of collusion with a public official for shared
gain, or coercion by the public official for extortionary purposes (Sequeira and Djankov,
2010). A narrowly defined question about the prevalence of corruption applied to very
different settings would not be able to capture any of these differences.
Perception-based indices also face several methodological challenges, namely unpredictable sampling and reporting bias. International businessmen, long considered the experts and the most informed respondents to these surveys, may not be impartial or objective
evaluators of corruption in different countries. Sampling bias emerges if an international
firms exposure to, and therefore knowledge of, corruption in a given country is determined
by the proclivity of a particular business to engage in corrupt behavior in the first place,
and by the type of business activity it is involved in. If most international businessmen are
involved in the oil sector in Nigeria and this is perceived as being a particularly corrupt
sector, Nigeria is likely to rank higher in the corruption index than other countries with
higher variance in the distribution of corruption and international businessmen across sectors.
A second type of bias stems from voluntary or involuntary misreporting of perceptions
of corruption. Perceptions may differ significantly from actual practices for a variety of reasons. Severe mismeasurement or perhaps even self-fulfilling forms of corruption can emerge
if respondents fall prey to certain cognitive biases identified in the psychology literature
such as the bandwagon effect, under which perceptions of respondents are influenced by
the most commonly held perceptions of corruption in a given country, even if they are not
substantiated by the respondents actual experience. A second type of cognitive bias that
may emerge is driven by a halo effect, as international experts and businessmen may
expect poorer countries or more dysfunctional governments to also be more corrupt.
At a more practical level, the methodology and degree of completeness of these indices
varies both from country to country, and from year to year, rendering cross-sectional and

longitudinal studies hard to interpret.

The actual evidence on the validity of perception-based indices is mixed. Fisman and
Miguel (2007) identify a positive correlation between being perceived as a corrupt country
according to the CPI index and actual corrupt practices, measured as the non-payment of
parking tickets by United Nations diplomats in New York City. Barr and Serra (2009) find
similar results in the context of a lab experiment. Olken (2009) on the other hand provides
suggestive evidence on the extent to which perceptions about corruption may differ from
actual corrupt practices. The author collects two measures of corruption in a road-building
project among 600 villages in Indonesia. The first measure is based on villagers perceptions
of corruption in their own village, while the second measure is based on an independent
comparison between reported funds used in road-building, and the actual funds spent. This
comparison revealed that increasing the actual missing expenditures in the road project by
10 per cent increased the probability of a villager reporting any corruption in the road
project by only 0.8 percent. Overall, perception biases appeared to be context-specific and
correlated with important respondent-level characteristics, a finding that was corroborated
by Donchev and Ujhelyi (2009).
If our goal is to understand the actual dynamics of corrupt behavior and the mechanisms through which corruption affects the economy, then this research suggests that any
cross-country comparison based on perception-based indices, with different sets of respondents and varying institutional contexts, is fraught with challenges.
Perception-based indices can however still play a role in furthering our understanding of
corruption. To ensure that perceptions are accurately measured, new attempts should be
made to design indicators that minimize sampling bias and misreporting, while increasing
the scope of corrupt practices they are able to capture. Future research could then focus
on two key areas: documenting the systematic ways in which perceptions differ from actual
corrupt behavior and identifying the circumstances under which perceptions themselves can
be an important driver of corrupt practices.

B. Survey-based Measures of Corruption

The growing realization that perception indices could not explain the many shapes and
forms corruption could take prompted scholars to seek new ways to gather micro-level data
on corruption.
The first step was to re-design survey questions to elicit truthful reporting of actual
bribe payments and to apply these to a representative sample of agents in the economy.
As a result, new firm and household surveys began to emerge with standardized questions
on whether individuals or firms had actually engaged in corrupt behavior in specific, welldefined instances, such as when obtaining a water contract or an electricity connection,
an import license or a government contract.6 The World Bank Enterprise Surveys (WBES)
and the Business Enterprise Economic Surveys (BEES) collect the most widely used firmlevel survey data on corruption. The International Crime Victim Surveys (ICVS) covers
individuals in 49 countries on whether they were asked for a bribe in any interaction with
government officials.7
Svensson (2003) and Fisman and Svensson (2007) illustrate the importance of this
methodology. Using self-reported bribe payments by Ugandan firms captured by WBES,
the authors show that while corruption was pervasive in the country, its incidence varied by
firm characteristics. Understanding the full distribution of bribe payments across different
types of agents is critical to identify the distributional costs of corruption, and to begin to
devise targeted strategies to tackle it.
This type of survey data allowed for more specific and therefore meaningful longitudinal
and cross-sectional comparisons of corruption in different countries, based on a more representative sample of respondents.8 While this was a clear improvement over the perception6
These questions avoided putting the respondent on the spot but tried instead to contextualize his or her
actions by asking questions like How frequently do you think corruption is part of the business culture in
your country of operation? (Soreide, 2004) or We have heard that police officers at road posts will often
request informal payments to let truckers proceed. How much do you think a company like yours would be
asked to pay throughout the year? (Sequeira and Djankov, 2010).
7
For examples of studies using the ICVS data see Mocan (2008) and Hunt and Laszlo (2011).
8
A similar approach that is gaining currency in the policy world due to the rapid spread of cell phone
technology is based on mobile apps that allow citizens to report the payment of bribes in real time as they
interact with different types of public officials. The Indian site www.ipaidbribe.org is one such example:
at the time of writing, this site had already registered almost 15,000 reports of bribery incidents. Another
example is the site http://www.corruptiontracker.org/, which tracks self-reported bribe payments throughout the world in several domains of public services. This new method of measuring corruption is being

based measurement of corruption from the earlier literature, survey data brought some
challenges of its own.
The accuracy and reliability of a survey-based measure of corruption is heavily dependent on the quality and consistency of the wording of the questions posed to respondents.
Respondents from different countries and cultures may understand the same question in
completely different ways, particularly on something as elusive and ill-defined as corruption. What may be seen as a gift building towards a prosperous business relationship in
one country can be perceived as a blatant bribe in others. Several techniques have been
suggested to try to mitigate these problems and safeguard the comparability of the data
(eg. see King et al. (2011) for a description of the method of anchoring vignettes). Openended questions, longer questions, and questions incorporating wording that implies that
the behavior is more or less common are techniques that have been shown to yield higher
reports of sensitive behaviors (Bradburn, 1983; Catania et al., 1990; Miller et al., 1990;
Schwarz et al., 1991).
A second type of challenge is the extent to which a respondent may purposefully misreport bribe payments. Fear or shame of exposure could easily lead respondents to underreport bribes, while a strategic concern with influencing action on a particular corrupt
practice could lead them to over-report instances of corruption (Harrison and Hughes,
1997). The direction of this social desirability bias is hard to ascertain as it depends on
the particular interest of the respondent in either facilitating or preventing these practices.
This is in turn tied to whether the respondent is benefitting or not from corruption, and
to how detrimental or justified the respondent views his or her actions to be Ariely (2010);
Gino and Ariely (2010) . Moreover, survey interviews are a one off event and they are
too short for the enumerator to establish a relationship of trust with the respondent to ensure truthful reporting. Other limitations of survey data include imperfect recall of events
(Rose-Ackerman, 2006) and the fact that the questions currently asked in standard surveys seldom allow for great detail on the micro-dynamics of corruption. The majority of
increasingly adopted to help concerned citizens monitor their governments and anonymously report bribes.
This approach carries however important methodological concerns of selection bias of respondents, and of
the possible manipulation or exaggeration of reports. In fact, countries with more registered instances of
corruption may simply be countries with greater level of awareness and higher levels of citizen activism, not
necessarily higher levels of actual corruption.

questions used in these surveys tend to be close-ended and few in number, leaving limited
scope for the detection of alternative forms of corruption researchers are not yet aware of.
Further research is also needed to correctly identify and account for any social desirability
bias or fear of public disclosure that may affect survey-based measures of corruption. In
fact, understanding the extent and determinants of this bias can even shed new light on
the motivations of those involved in corrupt activities.
An alternative method of measuring corruption is through official, government-led corruption audits. This measure was used in Ferraz and Finan (2008, 2011) to investigate
how disclosing results from municipal government level corruption audits affected electoral
outcomes in Brazil. While in this particular context the authors were less concerned with
the accuracy of their measure of corruption as long as it was deemed credible and accurate
by the electorate and by the politicians involved so as to affect their behavior, the main
challenge of using this type of measure is that the capacity of the government to detect
and quantify corruption may be altogether low, or, more importantly, it may vary across
regions and across agents involved in the bureaucratic chain. Moreover, once corrupt officials begin to understand the workings of a system that attempts to consistently detect
and measure corruption through systematic audits, they may adapt their behavior and find
ways to elude it. Finally, there may be political incentives to manipulate administrative
data so as to reward or punish at will (Banerjee et al., 2011; Camacho and Conover, 2009).

C. Minding Gaps in the Data

A recent but increasingly common approach to measuring corruption consists in identifying
gaps in primary or secondary data that suggest corrupt practices. We discuss three possible strategies under this approach: identifying a mismatch between two sources of official
administrative data; detecting discrepancies between administrative data and results from
an independent household or firm-survey; or generating two primary sources of data and
finding gaps that suggest hidden and illicit behavior.
The first example of comparing two official sources of administrative data can be found
in Reinikka and Svensson (2004)s attempt to measure corruption in transfers between the
9

central government in Uganda and schools. The authors resort to a Public Expenditure
Tracking Survey (PETS) which allows them to see at what level of the bureaucracy funds
were captured, and how much of the originally allocated funds reached the lower levels
of the bureaucratic chain. The study finds significant leakage, in the order of 87% of the
total amount of funds transferred. More importantly, having micro data on these transfers
allowed the researchers to identify significant variation in corrupt behavior across schools,
providing valuable insights that led to the design of a more accurate bargaining model to
describe corruption in this particular setting.
This method was also employed in Fisman and Wei (2004) to measure corruption in
the form of tax evasion, by comparing reported exports to reported imports from sending
and receiving countries respectively. The intuition, first pioneered by Bhagwati (1964), was
that sending countries had no incentive to misreport prices or volumes whereas receiving
countries did. This methodology was replicated in Narciso and Javorcik (2008) comparing
the value of exports reported by Germany to the value of imports from Germany reported
by ten Eastern European countries. In both cases, the authors find that the gap is largest
for products with high tariffs, and smallest for products with high tariffs on closely related
products.9 The emergence of robust patterns in the data allay our concerns about the
possibility that the mismatch is driven by poor reporting capabilities in some countries
but not others. The level of detail in the data also allowed the researchers to identify the
different mechanisms of corrupt behavior at play: Fisman and Wei (2004) provide evidence
that product classification is the most prevalent form of tariff evasion while Narciso and
Javorcik (2008) provide evidence for price misrepresentation. Similarly, Fisman and Wei
(2009) detect corruption in the smuggling of cultural artefacts into the US by comparing
recorded imports to the US to reported exports from the rest of the world. The authors find
that this gap is largest for countries with lower scores in international corruption indices.
Another example of this method of measuring corruption by comparing data from official sources can be found in Hsieh and Moretti (2006). The authors measure corruption
in the Iraqi Oil-For-Food program administered by the United Nations, as the difference
between world prices of oil and the price received by Saddam Husseins regime.
9

Mishra et al. (2008) conduct a similar study for India and find that there are more missing imports
during periods of higher tariffs.

10

This approach has been used not only to measure corruption and to detect interesting
patterns of corrupt behavior, but also to test for the impact of anti-corruption policies.
Taking advantage of a quasi-experiment resulting from the introduction of more stringent
monitoring over corrupt practices in the procurement of medication in the hospitals of
Buenos Aires in Argentina, Tella and Schargrodsky (2004) find that reported prices and
quantity of medication distributed decreased by 12.3% and 9.7% respectively during periods of more intense monitoring.
An alternative approach is to compare administrative data to an independently conducted audit study, or a household or firm survey, as exemplified by Olken (2007). The
author compares reported expenditures on road-building in over 600 villages in Indonesia
to an independent engineering audit that determined how much was actually spent on each
road. The audit consisted of engineers digging out portions of the road to identify the materials used. Enumerators conducted price surveys in local markets to estimate the actual
prices of the materials used, and surveyed villagers to obtain estimates of local wages. This
allowed the author to measure the gap between declared official expenditures and a more
accurate measure of what was actually spent. The findings were startling: the difference
between what the village claimed to have spent on the road and what the engineers estimated had actually been spent averaged about 24% of the total cost of the road.
Similarly, Olken (2006) measures corruption by comparing official government data to
an independent household survey, by estimating the extent of theft from a programme that
distributed subsidized rice in Indonesia. The author compares official data on rice distribution, to household-level information on the actual consumption of rice. Niehaus and
Sukhtankar (2011) adopt a similar methodology by measuring corruption as the gap between official and actual quantities of days and wages paid under the Indian National Rural
Employment Guarantee Act. Actual data is collected through an independent survey of the
days effectively worked and the payment effectively received. The authors find corruption
in the form of both the over-reporting of days and the under-payment of wages. Similarly,
Atanassova et al. (2009) collected data on prices paid and quantities received from the
public distribution system in India and compare them to the official prices of those same
commodities to detect instances of graft.

11

While this method is now widely adopted in a variety of settings10 , the fact that a
mismatch between reported and received transfers can be attributed to corruption is based
on the untested assumption of consistent and high-quality bookkeeping throughout the bureaucratic setup of a given country. Bureaucratic inefficiencies or unexpected reallocations
of funds across budgetary categories could however give rise to similar patterns in the data,
leading us to mistakenly attribute the potential mismatch to corrupt behavior alone. To
substantiate this assumption, authors often try to find a source of exogenous variation in
incentives for corrupt behavior, which they can show to be correlated with variations in the
intensity of the mismatch. The challenge remains one of identifying a variation that affects
the outcome of interest but not the potential confounds.
Fisman and Wang (2011) provide an interesting example of this approach applied to
uncovering underpricing in state asset sales in China. Because managers of state companies do not personally bear the cost of selling shares at a discount, the lack of oversight
creates potential for buyers to bribe insiders to underprice sales. The authors construct a
database of negotiated state transfers complemented by firm-level information from public sources, yielding a sample of 2,121 deals involving 649 firms. To measure corruption
they exploit two characteristics of the Chinese transfer market. First, holdings of Chinese
state companies are split between private shares (resulting from partial privatization in
the early 1990s) and a substantial amount of government shares. Unlike private shares,
however, government shares are non-tradable, with transfer sums determined through negotiation and then subject to regulatory approval. Since private and governmental shares
are comparable apart from the different trading procedures, any difference between the negotiated transfer price and the average stock price is likely to reflect underpricing. Second,
the authors also assume that sellers of underpriced government shares often deliberately
misstate their status as a private company in order to avoid close regulatory scrutiny and
detection. While the original ownership status of these disguised firms can be traced,
most of the regulatory bodies turned a blind eye, providing a channel for eluding oversight.
The authors then proceed to construct an indicator for disguised firms by systematically
checking the original ownership of each private seller via public firm listings and databases.
10

For a review see Olken and Pande (2011)

12

The main empirical goal is to identify a correlation between the extent of underpricing and
subsequent firm performance with the disguised firm dummy. The findings suggest that
sales by disguised sellers - i.e. firms misrepresenting their state of ownership to elude
regulatory scrutiny - are discounted 5-10% points more than sales by other owners, with
sale sizes significantly smaller (arguably also to prevent detection).
In a similar vein, Coviello and Gagliarducci (2010) study how a politicians tenure in
office may increase the chances of collusive corruption in public procurement auctions by
Italian municipalities. The authors exploit a change in the electoral law that introduced
two term limits that would immediately affect some, but not all mayors. The study finds
that an increase in a mayors tenure in office was associated with arguably worse procurement outcomes in the form of fewer bidders per auction, a lower winning rebate, a
higher probability that the winner was local and that the same firm was awarded repeated
auctions. Sukhtankar (2011) measures corruption as the gap between reported sugar cane
crushed at Indian sugar mills and sugar actually produced. He finds that this gap is more
pronounced in election years, particularly for mills controlled by politicians who are contesting an election. This correlation suggests that politicians divert resources in election
years from the mills to financing their campaigns.
Tella and Franceschelli (2009) investigate whether coverage of governmental corruption
is negatively correlated with the amount of governmental transfers paid for advertisement
in newspapers. The authors measure corruption coverage by the total space in the front
page of a newspaper per month that is devoted to reporting corruption scandals involving
the government, and also collect data on governmental transfers for advertisement to newspapers. Their preferred measure of corruption is the estimated coefficient when regressing
front page coverage of corruption on government-paid advertisement. In this case, a negative association suggests that these transfers are part of a corrupt relationship between the
government and the media.
Khwaja and Mian (2005) also find evidence of corruption by identifying a correlation
between politically connected firms in Pakistan and access to credit. The authors find that
politically connected firms receive loans that are 45% larger and have 50% higher default
rates. More importantly, this preferential treatment is entirely driven by loans from govern-

13

ment banks, with private banks appearing to be free from any political bias in the allocation
of loans. The authors provide further evidence that corruption may be the mechanism at
play when they show that firms connected to the winning party or to the winning politician
receive more loans - a 10% point increase in the number of votes a politician obtains is
associated with a 7% increase in the amount borrowed by a connected firm.
Similarly, Faccio (2006) looks at a cross-section of 47 countries to estimate the impact
on stock values of companies having a politician join the firm as a board member or a large
shareholder. Evidence of the suggested mechanism of corruption is obtained by comparing
the strength of this relationship in countries with high and low levels of corruption, as
measured by standard perception based indices of corruption. The main finding is that this
relationship only holds in countries with above median corruption, lending further support
to the assumption that political connections may indeed be associated with corrupt practices.
While these studies illustrate the remarkable creativity of their authors in obtaining
estimates of the magnitude and extent of corruption in a variety of complex settings, this
methodology still faces several challenges. Given that these are indirect measures of corruption and that authors are seldom able to identify an adequate comparison group and
an exogenous source of variation that induces changes in the incentives to engage in corrupt behavior, concern with omitted variable bias and reverse causality are hard to dispel
entirely. For instance, it is possible that the underpricing of state sales studied in Fisman
and Wang (2011) is driven by other reasons than corruption such as liquidity discounts.
The direction and nature of corrupt dealings is also difficult to ascertain in many of these
cases. In Tella and Franceschelli (2009), it is hard to completely eliminate the possibility of reverse causality as governments may punish newspapers that report scandals by
withdrawing funds, but newspapers can also hold up the government until they receive a
bribe. These studies often require very careful and detailed collection of quantitative and
qualitative data to be able to convincingly tell a causal story, and to provide a meaningful
measure of corruption that can explain the mechanisms through which it is taking place.

14

D. Measuring Corruption through Market and Statistical Inference

An emerging subfield labeled forensic economics is concerned with uncovering hidden
and harmful behavior through a rigorous application of economic theory, and a creative
search for secondary data. To uncover corruption in a wide range of contexts, authors have
compared official data to predictions from price-theoretic models and market equilibrium
conditions, in order to identify patterns of statistical anomalies that may suggest illicit
behavior.
Fisman (2001) best exemplifies this methodology in an event study that estimated the
value of firms political connections. The author begins by estimating the level of each
Indonesian companys political connectivity to President Suharto during his time in office,
and then measures how the prices of each firms stocks moved every time there was a rumor
about Suhartos imminent death. The underlying assumption was that if in equilibrium
stock prices reflect perfect information on the overall value of the firm, then the change
in stock market values, ceteris paribus, could only be attributed to a fall in the value of
the firms political connection. Based on baseline estimates of the impact Suhartos death
would have on the performance of the market (a 20% fall), the author estimates that at
least 23% of each firms value was due to the Suharto connection. Fisman et al. (2006)
apply the same methodology to estimate the value of firms political connections to former
US vice-president Richard Cheney during the Bush Administration, but this time to find
that this value was close to zero.
Gorodnichenko and Peter (2007) start from first principles on labor market equilibrium
conditions to identify corruption in public services. The authors conduct a household survey in Ukraine to test the hypothesis that a difference in pay between the public and the
private sector should lead to similar differences in consumption patterns of public and private employees. The actual data revealed instead almost identical consumption patterns,
despite the significant wage differential of almost 24-32%. This discrepancy was attributed
to corrupt behavior by public workers.
Alternatively, several studies began to look for outliers or anomalous statistical patterns
in the data that suggested figures were being manipulated to cover illicit behavior. An ex-

15

ample of this type of approach can be found in Jacob and Levitt (2003), which detects
teachers manipulation of test scores. The authors first develop an algorithm for detecting
teacher cheating that combines information on unexpected test score fluctuations and suspicious patterns of answers for students in a classroom. A pattern was considered to be
suspicious if there were unexpected test score fluctuations for students from year to year,
or suspicious answer patterns within a class such as blocks of identical answers or a high
degree of correlation between answers. Using data from the Chicago Public School System,
they then find that serious cases of teacher or administrator cheating on standardized tests
occur in a minimum of 4-5 percent of elementary school classrooms annually.
Duggan and Levitt (2002) adopt a similar approach to measure the extent of corruption in Sumo wrestling, in the form of collusion and match fixing. The authors exploit a
non-linearity in the payoff function of sumo wrestlers: sumo wrestlers need to secure at
least 8 wins in order to rise up in the rankings. As the marginal return to winning the
8th match is much higher than winning - for example -12 matches (since the sumo wrestler
is already guaranteed to rise in rank), the opportunity emerges for a wrestler who has already secured his ascent to collude with one who has not, letting the opponent win the 8th
game. Evidence of corrupt behavior is then measured as the deviation between the actual
number of wins in over 64,000 sumo matches and what would have been predicted by the
binomial distribution, which assumes that match outcomes are independently and equally
distributed for seventh and eighth wins. The authors find that wrestlers on the margin to
securing 8 wins are significantly more likely to win the game. Conversely, wrestlers whose
opponents are on the margin of securing 8 wins are significantly less likely to win the game.
Wolfers (2006) employs a similar methodology to measure corruption in gambling, in
the form of point-shaving in basketball matches. In the National Collegiate Athletic Association (NCAA) matches, bids are won based on a gamble on the winning margin, not
just the actual win. Players therefore care about winning the game while gamblers care
about covering the spread. These asymmetric incentives create opportunities for corruption
in gambling to emerge in the form of point-shaving, the practice of shaving the winning
margin below the point spread. Players and teams can be bribed in exchange of avoiding
to cover the spread. The efficient market hypothesis would assume that the probability of

16

a team beating the spread is unpredictable. The author draws upon data on the outcomes
of 44,120 games obtained from online betting markets, to compare the actual distribution
of winning margins to what a normal distribution would predict. The fact that too few
strong favorites win the game and cover the spread, relative to what would be expected
if covering the spread followed a normal distribution, is interpreted as evidence of pointshaving.
Camacho and Conover (2009) study corruption looking at the manipulation of a household level poverty index in Colombia that determined eligibility for a range of social programs. Evidence of manipulation is determined by the sharp discontinuity in the density
of the poverty index distribution exactly at the eligibility threshold. The authors confirm
this manipulation by showing that an increased number of census interviews required to
determine the poverty index took place right before mayoral elections, and that in more
competitive elections, cheating in the form of frequent and widespread manipulation, was
more pervasive. They find that a relatively high proportion of individuals had very similar
answers to the survey in a given month, and that from those, 97% had scores below the
eligibility threshold.
Finally, a model-based approach to measuring corruption can be found in Oliva (2008),
who combines a non-parametric test with a structural model to test for corruption in smogcheck vehicle testing. First, the author identifies anomalous patterns in pass/fail sequences
at smog check vehicle centers, given predicted fair probabilities of passing the test in a
model with honest behavior. The author estimates a mapping from car attributes into
fair probabilities of passing the test based on data from centers assumed to show limited
evidence of cheating. The mapping is then used to predict the fair probability of passing for
the rest of the car fleet. Finally, the author estimates a structural model of car owner testing
decisions that allows for both re-testing and cheating. A maximum likelihood estimation
of the model yields estimates for both the prevalence of cheating and the equilibrium bribe
in the cheating market.
These studies offer a promising way ahead to better detect corruption in a variety
of settings, but also to better understand the micro-dynamics and the overall impact of
corruption in the economy. In contrast to the previous measures that rely solely on iden-

17

tifying gaps in the data, in this case authors start from first principles with a model of
non-corrupt behavior and draw specific theoretical predictions on how the data may reflect
deviations from this model. This method is particularly well-suited to understanding the
micro-dynamics of corrupt behavior and to directly test important theories of corruption in
the data. The challenge of applying this methodology is that since the corruption measure
is often indirect, the authors have to go to great lengths to rule out alternative explanations
such as whether sumo wrestlers or baseball players increase their effort at the margin; and
to argue that their results do not hinge on particular distributional assumptions, on the
characteristics of the statistical test employed, or on the features of their structural model.
Event studies like the ones employed in Fisman (2001) and Fisman and Wang (2011), also
require that the timing of events studied is well-understood and exogenous to pre-existing
levels of corruption.
III. Direct Observation of Bribe Payments

In recent decades, scholars have shown great ingenuity in developing new techniques to
glean more accurate, adequate and meaningful measures of corruption. While tremendous
progress has been made, several challenges still remain. Perception-based measures of corruption are vulnerable to sampling and reporting bias, survey-based measures struggle to
elicit truthful reporting of bribes, gaps in administrative data may be driven by dysfunctional government bookkeeping and an approach based on market or statistical inference
may struggle to isolate which part of the detected deviation from equilibrium conditions
can be attributed to corruption, and which part cannot Banerjee et al. (2011).
A. Documented Measures of Corruption
Bearing in mind the limitations of indirect measures of corruption Tran (2010) and Tran
and Cole (2011), suggest a more direct method of measurement by gathering data on documented bribe payments from internal records of firms. The authors complement this bribe
data with extensive qualitative interviews with CEOs to reach a clearer understanding of
the motivation for the payments they observe. The authors provide suggestive evidence of

18

how government contracts are often inflated both to hide bribes and to evade corporate
income tax.
The reasoning behind this method is that larger and more sophisticated firms tend to
carefully record bribe payments as part of their normal tracking of expenditures, especially
since bribes are often paid at different stages of the procurement process, while contracts are
being negotiated and implemented. Specifying the timeline and amount of bribe payments
also has the advantage of providing firms with some guidance on how much to inflate other
expenses, to avoid paying income taxes on bribe payments since these cannot be deducted.
Researchers were able to access these data under conditions of non-disclosure of the identity
of either the payers or the payees of the bribes.
The advantage of relying on documented bribes is that data quality is likely to be high
and it may allow the researchers to correctly identify who is involved in the deals, at what
time, and for what reason. When matched to overall procurement data such as information
on the quality and competitiveness of alternative bids for each tender, it can provide a
clearer snapshot of both the magnitude and the determinants of corruption, relative to any
of the other indirect measures.
There are however three main challenges with implementing this method. The first constraint is one of scale and generalizability. Only the most corrupt firms or those operating
in more corrupt sectors are likely to keep track of bribes paid, giving us a biased indicator
of the level of corruption in the economy. Second, it is difficult to replicate this method at
a larger scale across time and firms, given the challenge of convincing several companies to
share their records consistently with the researchers. This may lead to significant sampling
bias.
More importantly, there may be substantial variation in how firms record bribe payments and how they cover them up in different accounting categories. These patterns may
not be fully understood by the researcher. In a departure of the evidence in Tran (2010),
Cai et al. (2011) suggests that firms record bribes under an accounting category of entertainment and travel costs using fake or inflated receipts. The authors then have to resort to
restrictive techniques of structural modelling to isolate real from corruption-related records
under this category.

19

In yet other settings, private agents may actually not know they are paying bribes. If
the structure of the market is such that firms have to resort to intermediaries, as exemplified by the market for obtaining drivers licenses in Bertrand et al. (2007) or shipping
goods across international borders as described in Sequeira and Djankov (2010), then those
receiving the service may not be able to accurately distinguish between what was paid as
a bribe and what was paid to reward the service provided by the intermediary. This is
reinforced by the fact that intermediaries tend to have opaque pricing systems and private
agents may have limited information and knowledge on the actual price of the services
the intermediaries are paying for. Exploring this method therefore requires paying careful
attention to the possibility of measurement error and sampling bias.
The method of looking inside the firm to understand how and to whom bribe payments
are systematically paid is still in its infancy. Despite the challenges of replicability and generalizability, it offers great promise to generate important hypotheses on how corruption
affects the cost structure and consequently the production function of the firm.
A similar approach of using documented bribe payments is used by McMillan and Zoido
(2004) in a study of the extent and magnitude of bribe payments during Perus President
Alberto Fujimoris regime. Montesinos, the Presidents secret police-chief, bribed judges,
politicians and the news media in return for political support. He also kept records, with
signed contracts from those he bribed, and even videotapes of the act of paying a bribe.
The data became available after the fall of the Fujimori regime. While illuminating and rich
in detail, the rarity of this type of data may limit the use of this method more broadly in
the future. Unless it can be matched to secondary data, it also limits the range of questions
that can be explored on either the determinants or on the efficiency and distributional costs
of this type of corruption on the economy.
B. Observing Corruption in the Field
To overcome some of the limitations of previously discussed approaches, scholars have begun to reach deeper into the black box of corruption to try to directly observe agents as
they engage in the act of paying a bribe.
Chaudhury et al. (2006) apply this method of direct observation to measure the extent
20

to which public officials such as teachers and health care providers shirk from their official
duties, by not showing up to work while earning a government salary. Their measure of
shirking is based on three surprise visits to 3,700 randomly-selected schools in 20 Indian
states. The authors conclude that teacher-absenteeism was on average 25%, which meant
that on a normal day, a quarter of all primary school teachers were absent from school
throughout India.
Bertrand et al. (2007) adopt an experimental design to measure corruption in obtaining
drivers licenses in India and to identify which rules could be broken through bribes. The
authors randomly allocate applicants to one of three groups: a bonus group (which received
a bonus for obtaining a license quickly), a lesson group (offered free driving lessons) and
a comparison group. When given a financial incentive to obtain a drivers license faster,
applicants were able to do so at the cost of not learning how to drive. This was taken
as evidence that corruption was more than just a transfer from citizens to bureaucrats,
but that it actually allowed private agents to circumvent what in principle were viewed as
socially optimal rules. The experimental design and the richness of the dataset enabled the
authors to not only gauge the magnitude and extent of corruption, but also to directly test
whether corruption rendered public service delivery more responsive to citizens needs, and
if so, at what social cost.
Olken and Barron (2009) directly observe bribes paid by truck drivers to police and
military officers at road-posts and weighting stations along two main roads in Indonesia.
During 9 months, enumerators/observers shadowed truck drivers as they made over 6,000
payments to police on their route to and from the Indonesian province of Aceh. Truck
drivers made payments to avoid harassment at checkpoints along the roads, to avoid fines
for driving overweight, and to buy protection from criminal organizations or from the police. Enumerators observed whether payments were made in cash or in kind, and found
that bribe payments represented about 13 percent of the marginal cost of the trip. This
rich dataset allowed the authors to go beyond just measuring the magnitude of corruption
to directly test the extent to which standard pricing theories from industrial organization
were consistent with actual patterns of bribe payments. The authors exploit an exogenous
variation in the market structure of bribe payments caused by the government-led with-

21

drawal of over 30,000 police and military officials who were manning the checkpoints where
bribe extraction occurred. This withdrawal affected only one of the provinces under study
and because it was driven by the signing of a recent peace agreement, it was also plausibly
exogenous to existing patterns of bribes. The authors find that bureaucrats behave very
much like firms as they adopt sophisticated price discrimination strategies to set bribes and
they adjust their behavior in response to changes in market structure.
The strategy of having observers shadow bribe payers raises however an additional set
of concerns. It is possible that the presence of the observer affects the frequency, type
or magnitude of the bribe payments observed. While under observation, private agents
or public officials may reduce the extent of their illicit behavior or find new ways to hide
it. We are then faced with the Heinseberg indeterminacy principle, when agents change
their behavior because they are being studied in such a way that it becomes impossible
to measure simultaneously the phenomenon under study and the effect of the observation.
It is also very difficult to predict the direction of any Hawthorne or experimenter demand
effects.11 It is possible that participants want to please the researchers by over-reporting
corruption or that they change their behavior to pay fewer bribes following cues from the
researchers that this is what constitutes appropriate behavior.
Sequeira and Djankov (2010) measure bribe payments at ports and border posts in
two competing transport corridors in South Africa and Mozambique, with the goal of understanding the impact of corruption on firm behavior. The authors work directly with
well-established clearing agents who, by law, every importing firm has to resort to in order
to clear imports through international borders. Given the illicit nature of the bribe payments, the sample size was restricted to eight clearing agents so as to ensure discretion in
the data collection and to maximize the accuracy of the data. Each clearing agent worked
with an average of 20 to 25 clients. The authors began by conducting an informal survey
in the shipping industry to help stratify an official listing of these agents by their reputation for corruption and the length of establishment of their business. A random sample
of clearing agents was then selected from within each stratum to participate in the data
collection. This recruitment of the clearing agents was a long and carefully planned process.
11

See Zwane et al. (2011).

22

It required several months of engagement, so that the agents would fully understand how
the data would and would not be used. In all instances, researchers satisfied the clearing
agents participation constraint by ensuring that no data would be collected on their clients
apart from general indicators of size and frequency of shipments, and in some cases, that
the data would be handed over in anonymized spreadsheets to avoid the possibility of attribution.
Clearing agents tracked a random sample of 1,300 shipments, going through the ports of
Maputo in Mozambique, Durban in South Africa and the border post between South Africa
and Mozambique. They recorded detailed information on the characteristics of the cargo
and provided information on the primary recipients of bribes, the bribe amounts requested
and the reason for the bribe, ranging from the need to jump a long queue of trucks to
get into the port, to evading tariffs or missing important clearance documentation. The
findings were striking: bribe payments represented an increase of up to 14% of the marginal
cost of a shipment at the most corrupt port, and a monthly salary increase of up to 600%
for the average customs official.
Once the authors were able to estimate expected bribes per shipment based on cargo
and client characteristics, they then identified a set of firms that were equidistant to both
ports, and, given the product they were shipping, estimated how much each firm would pay
in bribes at either port. The authors also noted whether corruption was cost-increasing
(coercive) or cost-reducing (collusive) for each firm, at each port. The main findings were
that firms adjusted the organization of production in response to the different types of corruption they faced at each port. Coercive corruption led firms to go the long way around
to avoid the most corrupt port (more than doubling their transport costs in the process),
but collusive corruption, mostly in the form of tariff evasion, was associated with a higher
demand for port services given that corruption decreased the relative cost of imported inputs. The advantage of this methodology is that it provided an extremely rich dataset
that allowed the researchers to fully understand the extent, the magnitude and the reasons
for bribe payments along a chain of different bureaucratic procedures. It also provided
important insights into how corruption can introduce actual distortions in the economy by
having a real impact on different margins of firm behavior.

23

Sequeira (2011) applies the same methodology to investigate how corrupt practices respond to organizational changes in opportunities for bribe extraction. The author exploits
an exogenous variation in tariff schedules that reduced opportunities for the extraction of
bribes at a specific stage of the clearance process (the payment of tariffs) to observe any
substitution or income effects that could displace corruption into other stages of the delivery of the public service. The study found that while the reduction in opportunities for the
most profitable method of bribe extraction - tariff evasion - was associated with an overall
decrease in the probability of bribe payments occurring, this was partially offset by the
displacement of corruption into other more extortionary, more coercive and less efficient
methods of bribe extraction. The setup and level of detail of the dataset enabled the author
to measure the magnitude of corruption, the patterns of bribe payments across different
types of shippers, shipments and bureaucrats, as well as the impact of policy changes that
affect just one method of bribe extraction in a long chain of procedures that constitute the
delivery of the public good.
The primary concern with relying on private agents to document bribes is the fact that
they may not have an incentive to truthfully report either the amount, the frequency or to
whom the bribe is paid to, for fear of punishment or shame. While these concerns cannot be
fully dismissed,Sequeira and Djankov (2010) find that the distribution of the correlates of
bribes across shipments and bribe recipients was very similar for all participating clearing
agents, the majority of whom were not aware of each other before or during the study,
and would therefore have limited opportunities to collude in fixing the data. Moreover,
the authors made clear from the onset that the main focus of the study was on measuring the total costs of importing goods into each country, including all formal and informal
payments. Equal emphasis was therefore placed on collecting information on the characteristics of the cargo and the tariff amounts due, as on the pattern of bribe payments. This
particular setup was also unique in the sense that there was limited stigma attached to the
payment of bribes to port or border officials, and clearing agents would perceive a bribe as
a payment made on behalf of their clients. As mere intermediaries, they felt limited moral
responsibility for their actions.
To directly test for Hawthorne effects, Sequeira (2011) conducts an experiment by ran-

24

domly assigning clearing agents to sequences of monitored and non-monitored data collection. The monitored sequences were conducted by locally-hired observers, who observed all
legal and illegal payments made to port and border officials. The observers had experience
in the shipping industry, and were therefore familiar with all clearance procedures. To avoid
any suspicion, they were also similar in age and appearance to any other clerk who normally
assists clearing agents in their interactions with port officials. The experiment yielded interesting insights: shadowed clearing agents revealed a lower probability of paying a bribe
and reported lower bribe amounts on average, even when controlling for the characteristics of the cargo, the client firm and clearing agent fixed affects. The general sense of the
observers who participated in the experiment was that their presence had indeed changed
the nature of the interactions between the clearing agent and the public official, inhibiting
certain illicit transactions. An extensive literature in psychology also shows that private
methods of interviewing yield higher reports of sensitive behavior. In particular, there is
growing evidence that self-administered questionnaires increase the willingness of respondents to report sensitive behavior in a variety of settings (Bradburn and Sudman, 1979;
Groves, 1989; Waterton and Duffy, 1984; Weinrott and Saylor, 1991; Turner et al., 1983).
The intuition is that agents feel more at ease and more comfortable with gathering the
data themselves, without being directly observed in their interactions with public officials
Sequeira (2011). Understanding the nature, extent and implications of these Hawthorne
effects in different settings remains an important topic for future research.
A critical logistical constraint associated with this method of direct observation is that
it may require a long and at times difficult process of securing consent from a network of
actors in the field. The ease with which this can be done will vary from context to context,
and remain highly dependent on the levels of trust and openness that can be established
between researchers and subjects. Subjects may feel embarrassed to truthful report their
behavior or be concerned with the possible legal repercussions from disclosing sensitive information so surveying procedures that are able to take these motives into account in the
design and administration of the survey are more likely to succeed.
Despite these challenges, obtaining transaction-level data of bribe payments for a representative sample of agents offers great promise to enable scholars to test more specific

25

theories of the micro-dynamics of corrupt behavior, and to better identify the distribution
of costs and benefits it may bring to the different players involved in bribery deals. Observing the entire chain of public service delivery also holds great promise for identifying
behavioral responses to policy changes, which may result in a displacement of corruption
across different methods of bribe extraction. Different methods of bribe extraction can
ultimately determine the overall costs corruption imposes on the economy.
IV. Measuring Corruption: an Agenda for Future Research
A. What we have learned
Corruption has for a long time been one of the most sensitive and elusive research topics
in social sciences. Despite the challenges, scholars have made major strides in developing
innovative and increasingly precise measures of corruption in recent decades. New methods have emerged, reflecting advances in experimental and quasi-experimental econometric
techniques, but also important changes in the way corruption itself is understood.
Earlier studies viewed corruption primarily as a barrier to trade, investment and growth.
The emergence of cross-country data on perceptions of corruption triggered an extensive
empirical literature, which substantiated some of these theoretical predictions. Perceptionbased measures of corruption were however limited in their ability to explain the microdeterminants of corruption or the full set of mechanisms through which corruption could
affect the economy. They were also unable to explain important within country variation
in the incidence of corruption across different public services or to differentiate between
different types of corruption (eg high level vs petty corruption, coercive vs collusive) and
the range of behavioral responses it can induce. The empirical literature was plagued with
difficult issues of causal identification, and as a result represented a poor basis for the design
of effective anti-corruption policies.
When corruption began to be understood as a broader development challenge, perceptionbased data became ill-suited to answer most of the important questions that emerged.
Corruption was now viewed as an obstacle to the efficient and equitable delivery of public
services and as an impediment to the proper functioning of a broad set of institutions. The

26

analysis of the determinants and implications of corruption required a much richer and
more detailed set of measures of corrupt behavior than what was available.
A vibrant new strand in the empirical literature emerged based on the premise that
corruption is in fact more measurable than is often assumed, and that creative methods of
inquiry could help us peer into the actual black-box of corrupt behavior. Scholars made
significant inroads into measuring corruption through a crafty combination of direct and
indirect methods including self-reported survey data of both households and firms, detecting gaps between official and survey data, or identifying statistical anomalies in secondary
data that suggested illicit behavior.
More recently, a transaction-based approach to corruption has led researchers to delve
deep into the complex environment of a particular bureaucratic process in order to understand how corruption emerges, and the implications it may have for the different agents
involved in corrupt deals. The intuition is that an improved understanding of the microdynamics of corrupt behavior and of the broader institutional and organizational setup in
which it takes place can then provide a more solid basis for policy action.
These extraordinary advances in the measurement of corruption have brought clarity,
meaning and direction to research on corruption. They have allowed us to begin to test
different theories of corruption, to better understand the institutional and organizational
setup that frames corrupt behavior, to measure the impact of corruption and to identify
the behavioral responses it may induce.
B. What we need to learn
Despite significant overall progress, challenges still remain. There are three main areas of
methodological development in the measurement of corruption that we see as being central
to pushing the empirical literature further.
The first big challenge is to better understand the relationship between direct, indirect
and perception-based measures of corruption, and to identify the different set of biases
and measurement error each method may carry. It is important to identify under which
circumstances each measure is likely to yield a more accurate reading of the magnitude and
shape of corruption.
27

The second big challenge is to identify sources of exogenous variation in institutional

setups and organizational rules, within or across countries, and develop appropriate measures that allow for a better understanding of the relationship between institutional context
and patterns of corrupt behavior. Conceivably, even field experiments could be designed
to test behavioral responses of corruption to changes in different types of rules, which may
affect some individuals or firms but not others. Researchers should also be sensitive to the
possibility that corruption can generate asymmetric responses among different agents (individuals or firms), and that this broader set of behavioral responses will have implications
for the overall efficiency costs and distributional implications of corruption. Understanding
the whole range, distribution and intensity of behavioral responses to different types of
corruption will certainly continue to figure prominently in the corruption research agenda.
Third, researchers should look more systematically at the conditions under which direct
methods of measuring corruption can be scaled up to allow for a more accurate estimation
of the determinants and consequences of corruption across different contexts.
Our discussion of the relative advantages and disadvantages of each method of measuring corruption reveals that no single method alone is devoid of conceptual or logistical
challenges. The choice of method should ultimately be guided by a careful analysis of the
implicit conceptual and logistical trade offs. Perception-based indices or survey-based data
may be more suitable for identifying macro level correlates and trends in corruption across
countries, whereas methods involving direct observation of bribes may be more suited to
identifying the different types of corruption that can emerge in a given economy and its
distributional impact across agents. Market and statistical inference methods together
with measures based on gaps in administrative data are particularly suited to unveiling
the extent of corruption and illicit behavior in particular settings but are less capable of
suggesting specific means to eliminate such corruption. Their advantage lies in being the
cheapest and least cumbersome method relative to primary surveys or direct observation.
The most promising way forward however may perhaps lie in adopting a multiangular
approach, bridging macro and micro data on corruption and triangulating through an iterative process between different direct and indirect methods of measuring corruption. This
triangulation can be guided by the comparative advantage of each method in any particular

28

setting, but also in some instances, constitute an important process of cross-validation of a

particular method.

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