Social Networks and Peer Effects of Corruption: Theory and Evidence From China
42 Pages Posted: 8 Sep 2020 Last revised: 1 Feb 2024
Date Written: November 11, 2021
Abstract
In this paper, I provide the first theoretical model and reduced-form and structural empirical analysis of peer effects of corruption using observational data from China. In specifications including fixed effects to control for differences across hometown and college networks, and using an instrumental variable approach, I find that hometown and college ties with peers who have been investigated for corruption are associated with significant reductions in investigation probability. Evidence supports the explanation that when anti-corruption efforts are high, being connected to a corrupt official makes one less willing to engage in corruption for fear of being implicated, an act of ``drawing the line against the `problematic' politicians'' that is deeply rooted in contemporary Chinese political culture. I structurally estimate a networked game-theoretic model, and the estimates also indicate that such spillover of investigations is the dominant mechanism. Counterfactual analysis implies that corruption decreases as the network becomes denser and as the level of corruption detection increases.
Keywords: Social Ties, Peer Effects, (Anti-)Corruption, China
JEL Classification: D73, P16
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