Are Better Principals the Answer to the Corruption Problem?

Those in the business of giving policy advice know the surest way to guarantee a policymaker ignores their counsel is to say the problem is “complicated” or “there are no easy solutions” and that the best way to see the advice is accepted is to cast it in the form of a simple, straightforward solution that fits easily onto a single power point slide. World Bank economists have learned this lesson well as their recent report on how developing countries can cure corruption and related governance ills demonstrates.  Making Politics Work for Development: Harnessing Transparency and Citizen Engagement manages to state the solution to the corruption problem in one sentence: Give citizens more information about politicians so they will know which ones to vote out and which ones to keep at the next election.

The authors are able boil the complex problems of corruption and bad governance down into such a neat solution thanks to application of principal-agent theory.  But in avoiding the “it’s complicated”/“no easy solution” Scylla have they veered into the Charybdis of oversimplification?

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Corruption is BOTH a “Principal-Agent Problem” AND a “Collective Action Problem”

Let me admit right up front that this is going to be kind of a nerdy post, focused mostly (though not entirely) on questions of terminology.  But there’s a particular meme that seems to have emerged in much of the discussion of anticorruption strategy, which I think is just wrongheaded and misleading.  The meme goes something like this:

“Although some people describe corruption as a principal-agent problem, corruption is actually a collective action problem.”

(I hate to point fingers, but just so you know I’m not making this up, examples of this meme appear here, here, here, here, herehere, here, and here.  Most depressingly, the not-very-good Wikipedia entry on corruption also includes this claim.)

This statement uses sophisticated-sounding social science jargon, but to anyone who knows what the terms “principal-agent problem” and “collective action problem” actually mean, in their technical economic context, it doesn’t make much sense–at least insofar as it implies that “principal-agent problem” and “collective action problem” are mutually exclusive alternatives. In fact, corruption is both a principal-agent problem (always) and a collective action problem (often).  Recognizing the latter claim need not and should not entail rejecting the former claim; the assumption that it does not only reflects conceptual confusion, but also entails the risk that we will neglect the many insights that principal-agent theory has to offer the study and practice of anticorruption.

I am certainly not the first to make this point. Heather Marquette and Caryn Peiffer have a very nice U4 Issue Paper developing many of the same themes (in greater depth). But because this has been bugging me for a while, let me offer my take on this issue:

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