Corrupción

16

Understanding the Spread of Systemic Corruption in the Third
World
Feisal Khan1

Hobart and William Smith Colleges

ABSTRACT:
The traditional approach to modeling corruption in the social sciences has been to see it
as a classic principal-agent problem. While excellent for analyzing individual actions, the
principal-agent approach cannot explain the spread of corruption whensociety is
characterized by a norm of ‘non-arm’s-length’ dealings, or how a superior’s corruption
affects subordinates' behavior, i.e., it cannot incorporate social interactions. This paper
presents a threshold model of corruption that shows how, in economies characterized
by relatively under-developed formal institutional checks and balances, ‘non-arm’slength’ dealings and leadership corruption canrapidly lead to systemic corruption. The
model accommodates the differences seen in corruption levels in the Third World. Also
addressed are some implications of this model for reforming systemically corrupt
countries. The model can be readily adapted to other situations where the attitudes and
inclinations of the leadership are important in determining the final outcome.
JEL ClassificationCodes: D73; H11; O17
Key words: principal-agent; threshold model; bandwagon effects; political economy.
I. INTRODUCTION TO THE PROBLEM
All models are wrong but some are useful (George Box)
The case of Nigeria underlines the importance of corruption as a key explanatory
factor in understanding why some Third World countries have failed to achieve any
appreciable measure of socio-economicdevelopment. The world’s eighth largest oil
exporter earned over $56 billion from oil exports in 2006 (Energy Information
Administration 2007, 4 & 9) but has one of the world’s poorest track records on
delivering development to its people: ranking only 158th out of 177 countries in the
2007-2-08 United Nations Development Program’s Human Development Report
(UNDP). Transparency International’s2007 Corruption Perception Index put Nigeria as
only the 147th (out of 179) most honest country (i.e., tying for the 9th most corrupt) in
the world.2
Can corruption be blamed for underdevelopment? How crippling to the nation is
systemic corruption? Fagbadebo (2007, 35) concludes his study of governance in
Nigeria by stating outright that, “A failed, corrupt and inept leadership… have plunged
1I would like to thank Timur Kuran, Jennifer Tessendorf and two anonymous referees for their extremely valuable
comments on an earlier draft of this paper; naturally the usual disclaimers apply.
2
See the UNDP HDI website, http://hdr.undp.org/en/statistics/, for more details on the Index and how it is
calculated. See the Transparency International website,http://www.icgg.org/corruption.index.html, for more details
on the corruption perception index and how it is constructed.

American Review of Political Economy, December 2008, Volume 6(2). Pages 16-39
Copyright 2009 American Review of Political Economy

Khan: Understanding the Spread of Systemic Corruption in the Third World

17

development performance in Nigeria into the abyss.” In 2005 the Nigerian National
PlanningCommission, the apex government economic planning and coordination body,
“identified systemic corruption… as the major source of development failure”
(Fagbadebo 2007, 29) and one major USAID/World Bank survey indicated that 64% of
respondents had personally witnessed corrupt acts carried out by public officials
(Apampa 2005, 241).
While Nigeria has not yet collapsed, Zaire (now renamedDemocratic Republic of the
Congo) did in 1997. The extent of systemic corruption in Zaire was almost
unimaginable: one estimate from the 1970s put the amount of the annual government
operating budget that was “lost or diverted” under the rule of Mobutu Sese Seko, for
thirty-two years the strongman of Zaire, at 60 percent (Callaghy 1984, 189). Zaire
under Mobutu was the exemplar par excellence of...