Does Better Governance Guarantee Less Corruption? Evidence of Loss in Effectiveness of the Rule of Law

Abstract

Corruption is an endemic societal problem with profound implications in the development of nations. In combating this issue, cross-national evidence supporting the effectiveness of the rule of law seems at odds with poorly realized outcomes from reforms inspired in such literature. This paper provides an explanation for such contradiction.By taking a computational approach, we develop two methodological novelties into the empirical study of corruption: (1) generating large within-country variation by means of simulation (instead of cross-national data pooling), and (2) accounting for interactions between covariates through a spillover network. The latter (the network), seems responsible for a significant reduction in the effectiveness of the rule of law; especially among the least developed countries. We also find that effectiveness can be boosted by improving complementary policy issues that may lie beyond the governance agenda.Moreover, our simulations suggest that improvements to the rule of law are a necessary yet not sufficient condition to curve corruption. arXiv:1902.00428v1 [econ.GN] 1 Feb 2019In recent years, public governance has become one of the main topics in the international development agenda. However, in spite of significant efforts to improve governance through the rule of law, 1 there seems to be a mismatch between the expectations from policy prescriptions and real-world outcomes. 2 In this regard, the World Bank asserts -in its 2017 World Development Report: Governance and the Law -that legal improvements to the rule of law have rarely succeed in achieving drastic reductions of corruption. 3 Baez-Camargo and Passas (2017) offer a clue and one of the motivations for this study: that the ineffectiveness of reforms to the rule of law may originate from inconsistencies between the de jure governance and the social norms that guide citizens and bureaucrats. This paper studies, theoretically and empirically, a particular avenue for the ineffectiveness of the rule of law by means of a computational model. Its main contribution is new evidence of loss in effectiveness due to spillover effects to/from other policy issues. That is, while isolated improvements to the rule of law should, indeed, generate lower levels of corruption, such outcome is poorly realized because, in the real world, 1) the ceteris paribus conditions for other policy issues do not hold and 2) co-movements in other topics introduce effects that may oppose the traditional conduits of anti-corruption policies (i.e., inverting the net benefit of misbehaving and curtailing the discretionary use of resources). For example, positive externalities to policy issue i induce a new incentive structure in which the official in charge of i has more opportunities to divert funds because its inflated performance (due to the externalitites) looks positive under imperfect supervision.Considering a non-ceteris paribus setting with spillover effects allows us to move beyond 1 The Oxford Dictionary defines rule of law as "the restriction of the arbitr...

Policy priority inference: A computational framework to analyze the allocation of resources for the sustainable development goals

“…PPI builds on a model previously developed by Castañeda et al (2018) (referred to as "the CCG model" from here onward), consisting of a central authority allocating resources across a multidimensional and interlinked policy space. The CCG model has been previously applied to the study of policy resilience , ex-ante policy evaluation (Castañeda and Guerrero, 2019), policy coherence (Guerrero and Castañeda, 2020), and corruption (Guerrero and Castañeda, 2019). However, its ability to provide detailed policy advice is limited by not being able to account for negative interlinkages between indicators (so environmental issues cannot be considered) and by the need to build international datasets for calibration purposes.…”

“…Third, while these variables have traditionally been studied by economists from the principal-agent point of view (Rose-Ackerman, 1975; Klitgaard, 1988), today we know that the lack of a committed principal (a common feature in developing countries) leads to collective-action problems (Persson et al, 2013), rendering traditional individual-incentive-driven interventions ineffective or ambiguous (Kwon, 2014). The complexity arising from collective-action dynamics—such as social norms—explains why recent reforms to the rule of law by various developing countries have failed in curbing corruption (World Bank, 2017; Guerrero and Castañeda, 2019).…”

“…These indicators reflect the perception of citizens, entrepreneurs, experts in the public/private sector, and NGOs. Although perception-based indices have well-known limitations, they are still one of the best metrics used in corruption studies like those described by Guerrero and Castañeda (2019). The indicator of control of corruption reflects the quality of the monitoring efforts by the central authority, which is an important element in the model.…”

“…Of course, there may be other institutional factors through which inefficiencies materialize. Here, we consider monitoring efforts and the rule of law because (1) they are widely accepted determinants of corruption in the public governance literature, and (2) there exist well-known surveys that provide reliable data to impute the associated parameters Guerrero and Castañeda (2019). provide a thorough review of this literature and an in-depth discussion on the importance of monitoring and the rule of law.8 An alternative approach where both parameters are endogenous and time-dependent can be found in.…”

“… 6 We believe that, given the extensive literature on public economics, political economy, and behavioral sciences, our approach for establishing a trade-off between efficiency and proficiency is a good first approximation of the decision problem that public servants face. For more details on this modeling choice see Castañeda et al (2018), Guerrero and Castañeda (2019) and references cited there.…”