the economics of political corruption and economic development

From Tim Harford, a review of Economic Gangsters: Corruption, Violence, and the Poverty of Nations, by Raymond Fisman and Edward Miguel, in Reason...

Many economists think corruption is a rational response to irrational incentives. The World Bank’s “Doing Business” database lists 40 countries, from Iraq to Ethiopia, in which legally acquiring the necessary permissions to export a single standard cargo container takes more than one month. The more difficult it is to do something legally, the larger the temptation to do it illegally. Small wonder that in developing countries, few people make more money than customs officials.

If perverse incentives create corruption, that suggests a simple solution to an age-old problem...“institutions matter”...

There is a popular alternative view that says corrupt countries are corrupt not because the incentives are perverse but because they’re stuffed full of crooks, born and bred. In this view, corruption is cultural...

Into this controversy strode two economists, Raymond Fisman of Columbia and Edward Miguel of Berkeley, with a 2006 research paper that was brilliant and trivial in roughly equal measure. Fisman and Miguel realized that to test the two theories about corruption, you would ideally need to pluck people from all over the world, place them into a community whose laws they could ignore with impunity, then see who cheated and who was honest.

Impossible? Not at all. The United Nations in Manhattan kindly provided guinea pigs for just such an experiment. Diplomatic immunity meant that parking tickets issued to diplomats could not be enforced. The decision to park legally or not, therefore, was a matter of each person’s conscience.

Fisman and Miguel found that countries with endemic corruption at home, as measured by the anti-corruption organization Transparency International, were represented by habitual illegal parkers. Chad and Bangladesh, so often near the top of “perceptions of corruption” rankings, produced more than 2,500 violations between them from 1997 to 2005. Squeaky clean Scandinavians, on the other hand, committed only 12 unpaid parking violations, and most of those involved a single criminal mastermind from Finland. On the face of it, this evidence supports the view that poor countries are corrupt because they’re full of corrupt people.

Yet incentives clearly matter, too. In 2002...The city began to tow cars and the State Department deducted fines from the relevant foreign aid budgets. Almost overnight, unpaid violations fell dramatically.

This is sparkling stuff, and the story is enjoyably retold in Fisman and Miguel’s slim new volume, Economic Gangsters: Corruption, Violence, and the Poverty of Nations. I recommend the book wholeheartedly...the parking ticket study exemplifies the authors’ ingenuity, it also illuminates their limitations....We learn something about diplomats, but have we really learned something about economic development?...

The Princeton economist Alan Krueger recently highlighted what he calls “tectonic economics”—research that studies seismic shifts in society....

According to Krueger, those who pursue tectonic economics do so “because of frustration that the randomized and natural experiments often give us a compelling answer but to a narrow question.”

...compare the young authors with two giants of the field, the charismatic Jeffrey Sachs (surely the world’s most famous development economist) and Daron Acemoglu, winner of the rarer-than-the-Nobel John Bates Clark medal...Sachs and Acemoglu approach the question of whether institutions matter in very different ways....

That's interesting as well, but you can follow along to Reason's website if you want the rest!