Friday, July 13, 2012

Rational expectations, behavioural biases, and official transfers

Public corruption is the flavour of the season in India. A series of high profile corruption scandals across the country have ignited an intense debate about corruption in public offices. It has spotlighted attention on the pressures faced by public officials and about their frequent transfers if they fail to oblige their political masters. In this context, here is a Game Theory analysis of one way in which the brunt of such transfers are faced by upright officials. 

Consider the examples of Mr Honest Babu and Mr Corrupt Babu. As their names suggest, the former is scrupulously honest whereast the latter belongs to the opposite camp, and their respective reputations are accordingly well established. Both are Municipal Commissioners in two large neighbouring municipalities. As with all such jobs, they face a constant array of requests from political representatives on behalf of specific persons for individual favours.

They include requests for building permissions or layout approvals, property tax reductions, concessions on water or sewerage connections, transfer requests of officials, and so on. Some of these requests are genuine and deserve consideration, whereas, the majority are predictably without merits. Now both Commissioners face repeated such representations from Mr Percentage Mantri, the Municipal Minister. However, the nature of the requests going to the respective Commissioners through the Minister vary considerably based on expectations formed about these officers (based on their reputations) by applicants.

In case of Mr Honest Babu, applicants realize that he will personally follow-up and clear all genuine representations made to him, irrespective of whether it comes from the Minister or not. This message soon gets internalized and genuine applicants approach him directly. Others route their applications through the Minister and they invariably get rejected. Therefore, since only representations without any merit go through the Ministers office, all of them get rejected.

In case of Mr Corrupt Babu, applicants realize his willingness to indulge the requests, irrespective of merits, in return for bribes. But the bribes are often exorbitant if they approach him directly. Representations received through the office of Mr Percentage Mantri get favorable treatment. In such cases, the bribes are either waived off or are considerably reduced. Naturally, most representations, including the genuine ones, are routed through the Minister. And most of them get done.

Mr Percentage Mantri, prima facie percieves that while Mr Corrupt Babu indulges all his requests, Mr Honest Babu refuses everything. His office and those around him, who stand to benefit the most from the bribes collected from such representations, instigate the Minister against his honest Commissioner. He forms the impression that the latter is biased against him and therefore steps up efforts to get him transferred.

The example is a highly simplified illustration of a rational expectations and cognitive bias driven challenge faced by honest officials when discharging their responsibilities. There are two forces at work here.

1. In both cases, people quickly form expectations based on the respective administrative styles of officers and route their requests accordingly. The final outcome of this is that honest officer gets more requests directly, while the requests to the corrupt officer generally get routed through the minister. 

2. The Minister and his coterie - being unaware about this realignment of expectations and resultant changes in the pattern of routing requests (and the resultant changes in the conditional probability of positively actionable requests reaching each officer) - perceive one officer to be rejecting a disproportionately higher number of requests. In simple terms, the Minister's coterie develops an impression about Mr Honest Babu based on a representativeness bias.

I am not blind to the fact that the aforementioned analysis does not acknowledge for the blatantly illegal requests. Such requests are most likely to always originate or be routed from the Minister's office, irrespective of the nature of the officer. And the honest officer will invariably reject such requests whereas the corrupt man would oblige them. However, with such cases, Ministers too form rational expectations about officers (and the near certainty of them being rejected) and are therefore less likely to route such requests to them.


No Mist said...

While talking of biases you reveal your own biases by the names chosen -- Mr Percentage Mantri.

You seem to imply that while babus come in two varieties, good and bad, Mantris come in only one ie bad. the reality is quite the other way. and you will know the reality by conducting a survey questionaire (in case you are too conceited to know, maybe by your civil services past) - how many corrupt politicians have you personally met ? have you met any ? how many corrupt babus have you met ? have you met any ? who has harassed you more - babus or netas ?

The multitude of public requests are of very mundane nature (like civic work in their neighborhood) and for that people invariably find that babus come in only one variety - nitpickers. whether they are honest or corrupt is totally beyond the point. both the honest and corrupt are obsessive nitpickers and hence ministers need to kick their asses.

since we have too many babus for any work, the janata is reduced to running from pillar to post just to get heard. and that is also one major reason for them to seek out ministers. since ministers face grave job insecurity, they just cannot be rude or unhelpful to the public.

we need a system in which we have less babus and all of them subservient to the ministers. and babus must be kicked very very hard ...

Anonymous said...

Funny that we have come to justify and live with the notion of politicians and ministers legitimacy in influencing public officials in sanctioning favors to individuals or private parties. In reality there is absolutely no need for such influence and individuals and businesses should be able to directly interact with concerned civil services officials in realization of lawful services or clearances. Only in cases of emergency or on humanitarian grounds there can be a need for influence by politicians or ministers recommending a course of action.

Also, in reality, both bureaucrats and politicians seek and abet such opportunities to extract rents while performing ordinary or extraordinary duties some of those being illegal. It would be interesting to analyze how such incredible abuse of power by public officials, that includes politicians, can gain such legitimacy in India when compared to democracies in the West.

gulzar said...

thanks for the comments/abuse.

No Mist, there is no bias here. I was only talking about a "game" that will be played only when there is a corrupt minister. with a honest minister, there will be no such game.