Preferences of Types of Corruption: A Rational Choice Model

by Mariano Mosquera

By arranging the types of relational corruption most frequently found in Latin American countries from a rational agent perspective, it is possible to identify the corrupt practices that cause considerable damage to institutions as well as to society.

A Rational Choice Scenario

Every decision requires three components: a decision agent, a set of decision alternatives, and finally, a valuation criterion to help the decision-maker choose one alternative over another. The decision agent is a selfish actor who seeks to maximize personal gain by increasing benefits and reducing costs. The agent is also a political actor who is interested in the political benefits, and not only in the economic benefits.1 Finally, the rational and political agent is a public official who is capable of making decisions that affect the purpose of the public institutions by abusing the public power entrusted to them.

On the other hand, a hypothetical scenario with complete information and lack of restrictions is assumed (what-if analysis).2 In this scenario, completeness and transitivity properties are applied to alternatives (incomparable options are discarded).3 This ensures that the valuation criterion for the agent will be comprehensive and systematic.4

In our case, the set of alternatives is made up of types of relational corruption. Corruption is defined as the abuse of the entrusted power for private gain, but the gain may also be political. The valuation criterion within a framework of the rational choice theory takes the form of costs and benefits; in particular, the costs and benefits associated with the types of relational corruption. In other words, the types of corruption involve a series of costs and benefits that the rational agent can assess in order to choose one over another.

Cost-Benefit Analysis of the Corrupt Relationship

Costs are assessed as a risk before making a decision. The cost risk is defined as the consequence of the costs based on the likelihood of occurrence. The main cost risk of each type of relational corruption is associated with the possibility of being invisible; that is, the likelihood that the type of corruption is maintained in secrecy.

The lower the cost of being invisible, the greater the opportunity for a certain type of corruption. The higher the cost of being invisible—for example, when it is necessary to develop strategies to cover a defect inherent in the type of corruption—the lesser the opportunity for said type of corruption. That is why the assessment of the cost risk of a type of corruption is determined by two factors. The first factor is the number of actors involved in corruption. If there are two actors involved in corruption it is easier (less costly) to maintain secrecy than if there are more than two participants. The second factor is the method of corrupt relationship, which is assessed on the basis of the likelihood of keeping corruption invisible, and not on its effectiveness.

The three main methods are influence, agreement, and threat, in this order of priority for the rational actor. Influence is not as explicit as an agreement, hence the cost of being invisible is lower. An agreement is consented to, while a threat is more costly, since it can be visibly resisted by the actor that receives the violence of the threat. The definition of institutional corruption is centered on this inappropriate method of conducting a relationship, which undermines legitimate procedures.5

On the other hand, the main benefit of these types of corruption is associated with the level of monetary gain. This level of gain is interesting to the political system and its funding only if it is high. The monetary gain depends on the economic position of the related actor. Companies, beneficiaries of policies, civil servants and citizens: this is the order of priority for the agent. Companies have more economic potential than citizens. Also, in Latin American countries, the increase in public expenditure on transfers, as well as the growth of public bureaucracy, are attractive for the corrupting agent.

Thus, the rational analysis of the corrupt relationship depends on the number of actors involved and the method of corrupt relationship chosen (cost risk of being invisible) and on the economic position of the related actor (economic and political benefit).

Analysis Matrix of Types of Corruption (With Scoring)

Regarding costs, the higher the score, the higher the cost of being invisible. As for benefits, the lower the score, the higher the economic and political benefit.

The main types of corruption can be found within the possible combinations of this matrix. Now we have the strategic advantage of being able to arrange the preferences of a rational agent. As a preliminary exercise to apply this model,6 we will analyze the following types of corruption which are frequently found in Latin American countries: bribery, clientelism, sale of offices, traffic of influence, political hiring, extortion, and association with suppliers.

Preferences of Types of Corruption

From a rational economic and political point of view, the traffic of influence is the first form of corruption. Only two actors can be involved in this practice: the agent and a company that acts as a lobby group or finances electoral campaigns to obtain favors (3 points).

The association with suppliers is the second form of corruption. The two actors involved in this practice, the agent and a company, enter into a secret agreement to award contracts (4 points). The monetary gain is used to finance political activities.

Clientelism, the third form of corruption, is a widespread practice in Latin American countries. This practice involves many actors who benefit from public policies through influence (5 points).

Political hiring, without meritocratic processes or performance management, occupies the fourth place. This practice connects many civil servants by means of influence (6 points).

These last two types, unlike other practices in which the agent receives money that is later used to finance political activities, are a “direct political investment” since the service provided on a discretionary basis is what influences political loyalty.

The sale of offices, which occupies the fifth place, involves monetary compensation for the appointment to a public office, and connects two actors, agent and employee, by means of an agreement (6 points). This practice does not involve large amounts of money and is not used to finance political activities.

Ordinary bribery involving citizens, although only two actors are connected by means of an agreement, occupies the sixth place (7 points).

Extortion can also involve two actors by means of a threat, and if the actors are citizens, it reaches eight (8) points. This practice is not used to finance political activities.

Identifying the types of corruption with greater opportunity of maximizing the agent's utility entails identifying the forms that are causing more damage to institutions as well as to society. The higher the economic utility is for the corrupting agent, the more distorted the public investment is, and the higher the increase of the transaction costs that affect the market. The higher the political utility, the more distorted the equitable purpose of the state and the representation of public officials.

In order to discourage corruption, it is necessary to develop better legal frameworks and control institutions that increase the cost of being invisible for the various types of corruption. This is accomplished through schemes of visibility into the agendas of public officials, transparency mechanisms for public acquisitions, and evidence-based public policies, among others.

1. Political benefit as acknowledgement in a group of people with common interests. Mancur Olson, The Logic of Collective Action (Harvard University Press, 1965).
2. Pau Marí-Klose, Elección Racional (Rational Choice) (CIS, 2000). It is important to note that there are institutional conditions of the competitive democracy that promote corruption, but the “what-if analysis” requirements are applied to the selection of types of corruption.
3. Norman Schofield, “Rational Choice and Political Economy” in The Rational Choice Controversy (Yale University Press, 1996).
4. Antonio Villar, Decisiones Sociales (Mc Graw Hill, 2006).
5. Dennis Thompson, "Two Concepts of Corruption," Edmond J. Safra Research Lab Working Papers, No. 16 (2013).
6. While this model can be combined with other theoretical perspectives, the starting hypothesis is that as far as decisions on corruption are concerned, the agent's rationality becomes more pronounced. This model is developed extensively in this author’s postdoctoral fellowship at the National University of Cordoba (Secretary of Science and Technology, National University of Cordoba).