Monday, March 10, 2008

Of Leader and Grassroots Participation

Here is the teaser:
“...found big changes in growth when autocratic leaders die in office—both positive and negative, but no substantial change when democratic leaders died in office......(T)hat individual leaders can play crucial roles in shaping the growth of nations,”
and (in Indonesia)
“increasing government audits reduced missing expenditures, as measured by discrepancies between official project costs and an independent engineer’s estimate of costs, by eight percentage points. By contrast, increasing grassroots participation in monitoring had little average impact…. Overall, the results suggest that traditional top-down monitoring can play an important role in reducing corruption.”
Who do you think found that (rather unpopular) evidence?

Yes, it's Ben Olken, one of the rising stars in economics.


  1. Olken's Monitoring Corruption: Evidence from a FieldExperiment in Indonesia is confusing he actually said that " Missing expenditures averaged about 24 percent across the villages in the study." : I found this unbelievable in Indonesia, he must've got the wrong numbers, if missing expenditures is only 24% we wouldn't have corruption problems.

    And the result reducing corruption by 8 % is not an impressive result, I have to say.

    Olken's study in Aceh is also boring (why would you need a harvard degree to know that preman are organized) but what's interesting is maybe.. maybe.. he is saying that Soeharto is better than the decentralized corruption nowadays. I would disagree with Olken on this one. Organizational behavior expert would eat him on the tall vs. flat organization theory, its a good theory but it doesn't apply to Crime and Corruption but only to Business. He forgot one thing, Moral. Try to measure that with econometrics.

  2. Herbi, And remember, corruption does not always take form in missing expenditures. By the way, 24% is a lot for village level. Remember also that this is the average number across villages in the sampe.

    And reducing missing expenditures by 8% -- this is not a stand alone number. You need to ask 'compared to what.'

    As for the Aceh paper, again, I don't know if you've read the paper but I can see that you missed the main ideas and points of the paper. Or, at least, you are interested in some different things that what the paper was about.

    In fact, the study did find that the structure of illegal extortion business (if we may call that) is just similar to the theory of market structure. And it was not about evaluating Suharto vs. now.

  3. a.p, "By the way, 24% is a lot for village level." just isn't cogent. If someone said 24% is a lot for national level that would make more sense although it would not have been so. Olken was the one freely choosing missing expenditures as his indicator so I respect him for that.

    "the study did find that the structure of illegal extortion business (if we may call that) is just similar to the theory of market structure."

    He basically said, "So it looks like the (crime and corruption) guys are behaving like a firm would behave." This is fine with me BUT to goes on saying that because these goons behave like a firm, then organizational behavior theory applies to them, in this case the flat vs.tall organization theory, thus any effort to reduce corruption should follow the theory's logic is just absurd.

    The article on Ben Olken said that "There is often an understandable desire to go after “the big fish” in corrupt societies, thus making an example of those whose pockets are fullest. “What this paper shows is that there is a potential cost of doing it that way." So maybe the guy who wrote the article got it wrong if this isn't a real quotation.

    To me it seems that Olken implied "that would be a good thing to do in reducing corruption because you would be moving from a decentralized corruption, where bribes are set independently, to a single, centralized person, and the total amount you would pay would be less."

    If you agree on this you and you mix it with industrial organizational behavior theory the result would be not so convincing.

    The paper is limited in terms of evaluating Crime and Corruption organizational behavior to the degree to which corrupt officials can coordinate with one another in setting prices. Even this is more related to market competitive structure than organizational behavior.

    Simply put : Some one with microeconomics assumption should be wise enough not to make conclusion about management theory. That's like Sri Mulyani having a debate with the late Selo Soemardjan.

  4. I don't think the finding is related to the organizational behavioral theory --which I don't know much about. It is indeed well within the theory of market structure in microeconomics.

    It goes, more or less, this way: If you have more firms, you tend to have more competition (or situation like perfect competitive market) in which price (or bribe per unit, or per truck trip) is low. This is the standard prescription for corruption reduction campaign --decentralize, less corruption.

    If you have only a single (or so) firm acting as a monopolist, the bribe per trip is higher. The total bribe paid, however, might be either lower or higher or remain the same as in the competitive market.

    The problem is when we have several firms acting like oligopolist, the relation between bribe per trip and the trip unit is rather unclear --unless you have a real good game theory model. So you actually want to avoid such oligopoly as the bribe per trip might be erratic and uncertain.

    The research mentioned implied that decentralizing policy might end up to higher bribe charged --(I guess) as the market might end up as semi-fragmented predatory oligopoly, instead of the intended perfect competitive one.

    In other words, it isn't always good to have decentralizing policy.

    And so what management theory are we talking about?