Is Corruption Distasteful or Just Another Cost of Business?

30 Pages Posted: 29 May 2020

See all articles by Ritwik Banerjee

Ritwik Banerjee

Indian Institute of Management Bangalore

Amadou Boly

African Development Bank

Robert Gillanders

Dublin City University Business School

Date Written: April 7, 2020

Abstract

The question of why firms and managers engage in corruption and related unethical behaviors has attracted significant academic attention with several authors pointing to the importance of social norms and expectations. In this paper, we ask if “legitimate” administrative costs are less of a disincentive to investment than costs that arise due to corruption? To answer this, we carried out a framed laboratory experiment in Nairobi, Kenya. The results suggest that our participants viewed corruption as just another cost of doing business. Relative to a treatment with no costs, the negative effect on investment of a treatment which featured the possibility of corruption was statistically indistinguishable from that of a treatment with “legitimate” administrative costs. We also experimented with giving participants in some treatments signals regarding the actual extent of corruption and participant expectations thereof in previous sessions. We find some evidence that the objective information actually increased investment without changing the participants’ own expectations regarding corruption. This finding of a reassurance effect of information provision has implications for the behavior of agents in a corrupt environment.

Keywords: Corruption; Investment; Experimental Economics

JEL Classification: C91; D73; D81

Suggested Citation

Banerjee, Ritwik and Boly, Amadou and Gillanders, Robert, Is Corruption Distasteful or Just Another Cost of Business? (April 7, 2020). Available at SSRN: https://ssrn.com/abstract=3570758 or http://dx.doi.org/10.2139/ssrn.3570758

Ritwik Banerjee

Indian Institute of Management Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560 076
India

HOME PAGE: http://www.ritwikbanerjee.in

Amadou Boly

African Development Bank ( email )

Rue Joseph Anoma
Abidjan, Ivory Coast 01 BP 1387
Ivory Coast (Cote D'ivoire)

Robert Gillanders (Contact Author)

Dublin City University Business School ( email )

Dublin 9
Ireland
Dublin 9 (Fax)

HOME PAGE: http://sites.google.com/site/robgillanders/

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