Classical economics assumes all individuals are rational economic agents. It is presumed that all our actions are taken based on a logical and rational cost-benefit analysis and considerations of the environment in which we operate. The rational economic agent has also been the basis of many traditional analysis of bureaucracy. This world-view has however been fiercely disputed by economists of different ideological shades.
I have been for the past eight years, an interested and an increasingly curious observer of the very vibrant corruption market in Government. This experience has exposed me to certain characterisitcs of this most universal and ubiquitious of social practices, which defy rational explanation. I will briefly outline two of them which I have observed, and try to analyse what any rational individual ought to have done under the circumstances.
Before I venture any further, I must make it clear that all my observations are of the general and may deviate significantly from the particular. In the light of even my limited experience, given the diversity of human behaviour I am convinced that corruption market cannot be fitted into the neat Bell Curve analysis that is characteristic of classical economic systems. In fact there could be many instances of large and unpredictable deviations in behaviour from the norm, ie, the long tail. I have myself observed unpredictable abberations from the norm on numerous occasions with many officials.
First, it is clear that any rational individual ought to be making as limited transactions as possible, so as to minimize the chances of being caught. Given that every transaction carries the imminent threat of being caught, it would make great sense to do as few transactions as possible, and make each transaction count. But I have observed that many of the transactions are sub-optimal (ie, the agent does not realise the full willingness of the victims to pay for the act), and the agents generally do not discriminate between opportunities (we thus see attempts to make money in every opportunity). For example, I have seen Engineers and Town Planners, with plethora of opportunities, biting off more than they can chew by claiming shares in even sub-optimal (smaller amount and the inherent danger) transactions. We can probably explain this in terms of avarice, which unlike other attributes, does not obey the traditional law of diminishing returns.
Second, like any other market, corruption too depends on certain exogenous variables. It is to be expected that rational individuals respond to the external system and adapt their behaviour. But I have seen numerous instances where greed gets the better of the individual and he carries out transactions under extremely dangerous and unfavourable conditions, thereby exposing him to a greater than acceptable risk. There seems to be a general reluctance among officials to wait and see how the environment develops before taking the plunge. Thus we see sub-ordinate officials unwilling or unable to bide time till say, a very strict Head of Department gets transferred or a period of heightened vigilance passes off.
So how does a typical corruption market play itself out? It would seem that when faced with the lure of money, most agents seem to give a go by to rationality. Do we conclusively presume that while indulging in corruption, officials do not function as rational agents and are captives of avarice, capriciousness and opportunism? Assume Mr Superior and Mr Subordinate, who are working in the Department for Prevention of Corruption. Mr Superior is the Head of the Section where Mr Subordinate and his numerous other colleagues are working. We can also safely presume that the Department is fairly representative of corruption in Government.
My experience has convinced me that multiple and sub-optimal transactions are more common among Mr Subordinate and his colleagues, who also believe in not discriminating between situations and prefers a continuous cash flow. This should come as no surprise, since the potentially smaller amounts in each transaction at this level would necessitate regular and greater number of transactions. Given these multiple transactions by each individual, there is naturally a very high probability of getting caught. Further, since there are larger number of sub-ordinate staff, a greater proportion of transactions which get detected ought to involve them.
What skews this distribution even further, is the entirely opposite nature of observed corruption at the level of Mr Superior. The potential reward from each transaction is much higher for Mr Superior. This may partly explain why he and his ilk are generally selective about their opportunities and are willing to wait for the opportune moment before striking gold. His defence becomes even more impregnable if he starts to act like a rational agent and decides to carefully select his opportunities and minimize his transactions while optimizing the returns from each transaction.
Mr Subordinate and his friends therefore get a raw deal on two counts. They become vulnerable not only due to the higher number of transactions and their impatience to wait for the right opportunities, but also due to the ability of Mr Superior and his colleagues to evade more intense focus on their activities. This coupled with the much smaller number of officials in the category of Mr Superior ensures that Mr Subordinate and friends gets caught a disproportionately higher number of times. I have done some calculations of the typical corruption economy in Engineering and Town Planning Departments in Municipal Corporations. The higher level officials have only a one-fifth chance of getting caught and indulge in transactions that are atleast ten times bigger than that done by those at the lower levels.
It is therefore reasonably safe to conclude that those few individuals operating rationally by transacting fewer and only the bigger opportunities and adapting to the environment, have considerably lesser probability of getting caught in the act. It may also not be incorrect to presume that such clinically executed and and bigger transactions generally evade the radar of detection agencies. If this is true, then there is a bigger category of the really corrupt, but rationally operating officials whom or anti-corruption agencies have not yet focussed on in the manner they ought to be doing. In fact does it meant that our anti-corruption wings are unaware of the actual extent of problem? Don't you think our anti-corruption agencies are barking down the wrong tree? These are important lessons to be learnt for the vigilance and other anti-corruption agencies.
Sudhir Venkatesh of Columbia University has done a pioneering study of the drug peddlers of Chicago and New York by embedding himself in that undergorund economy for nearly a decade. The study revealed a number of fascinating insights about the mind and motivations of drug peddlers. Someone ought to do a Sudhir Venkatesh and study the corruption market by emebedding himself in it. I am sure it will help us draw more definitive conclusions about the workings of this economy - the motivations driving its actors, the success and failure ratios, failure costs and success windfalls, the nature of interactions between actors, potential limit of transactions, limits where rationality breaks down, cost benefit analysis of transactions etc. In particular, I am interested in finding out what percentage of officials and what category of them do get caught,and what proportion of transactions are successful.
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