The March 5, 2014, Lab seminar was presented by Katherine Silz Carson, Edmond J. Safra Lab Fellow and Professor of Economics at the Unites States Air Force Academy (USAFA) in Colorado Springs, Colorado. An environmental and experimental economist, Silz Carson's research focuses on the experimental investigation of individual and collective incentives in group decision-making environments. Recently, Silz Carson has directed her research to using experimental and behavioral economics to better understand the mechanisms within an economy of influence that contribute to institutional corruption. Her Lab seminar presentation, titled: "Reducing Toleration of Institutional Corruption," probed cheating scandals, instances of fraud, and reports of sexual abuse in the United States service academies, and the military in general, and questioned if these lapses in ethical behavior could simply be attributed to bad actors, or if these problems were examples of a larger, systemic problem, such as institutional corruption. In the course of her presentation, she explored the significance of honor codes, the consequences and prevalence of whistleblowing, and the application of experimental economics games.
Silz Carson began the presentation by giving an overview of her background as a professor at USAFA and offering some context for her current research. She spoke about the rigorous admissions process at USAFA, the academic culture at USAFA, and the significance of USAFA's mission statement and honor code. Framing her conception of institutional corruption from the standpoint of an economist, she explained that when contemplating the Lessig definition of institutional corruption, the phrase "economy of influence," brings to mind a system of incentives within which individuals in organizations operate. With respect to the United States military, and many other organizations, Silz Carson introduced a stratified taxonomy of three types of economies of influence that are relevant to the study of institutional corruption. Macro, or external economies of influence, encompass the interactions between organizations, and or members of organizations, with other elements of the economy. Think, for example, of the interaction of the Department of Defense with defense contracting companies. Secondly, there are the micro-level internal economies of influence within organizations. These incentives can contribute to short-termism, for example. An example of a micro-level economy of influence relevant to the U.S military is the military assignment and promotion system. Finally, there is the sub-micro level of behavior by individuals within organizations. Incentives operate at this level as well, but there are also psychological, sociological, and ethical factors that affect individual behavior. For the purposes of this research, it is this sub-micro level of behavior that Silz Carson is interested in.
Silz Carson suggested that many of the scandals afflicting the military in recent years—from cheating scandals to sexual abuse scandals—have been exacerbated by the fact that other organization members ignored, or tolerated, the unethical behavior by other members of the organization. In her discussion, she distinguished between "whistleblowers" and "non-tolerators." The former are popularly viewed as those rare individuals who take great risks and suffer serious consequences by going to outside entities (such as the government or the press), to expose organizational wrongdoing. The latter operate internally within organizations to address wrongdoing within the chain of command. She argued that what we know about those individuals who hold organizations accountable depends on who you ask. If we only ask people who view themselves as "whistleblowers," we find that whistleblowing is rare, highly costly, and not particularly effective. If we ask larger samples of workers, we find a larger percentage who have addressed problems internally, who were successful in getting the problems addressed, and who suffered little in the way of negative consequences. These are the "non-tolerators." She argued that finding ways to mitigate toleration of unethical behavior in organizations might be one way to inoculate organizations from institutional corruption.
Silz-Carson then turned to the problem of incentive (in)compatibility, which she believes is at the root of many of the instances of institutional corruption studied at the Lab. She has studied this problem for the better part of the past two decades by studying situations in which individual and collective incentives collide, and developing solutions that are relevant to environmental economics. She illustrated the problem of incentive incompatibility using the example of two commonly employed auction mechanisms, which she had asked participants in the seminar to play in a simulated computer auction prior to the start of the seminar. She then extended this result to the recent case of the LIBOR manipulation scandal. She argued that it should not be surprising that traders were gaming the LIBOR mechanism, given the combination of the non-incentive compatibility of the rate-setting mechanism and the large stakes involved. The punchline is that when considering potential solutions to institutional corruption, it is important to consider the system of incentives that is driving the corruption in the first place.
In the final portion of the seminar, Silz Carson discussed how certain experimental economics games, such as the Dictator Game, Ultimatum Game, and Voluntary Contribution Game, can shed light on the effects of incentives, as well as psychological, sociological and ethical factors on individuals' behaviors within different decision-making settings. She presented preliminary results of a public goods with punishment game which she used to study the effect of cadet rank and military unit on their willingness to punish other cadets for non-cooperative behavior, and presented a "Whistleblowing Game," which she will use to study the problem of toleration when she returns to the Air Force Academy after her Lab Fellowship concludes in June.
-Summary composed by Joseph Hollow