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BREAD Working Paper No. 223, April 2009

Corruption Dynamics: The Golden Goose Effect

Paul Niehaus, Sandip Sukhtankar

Abstract

We study dynamic incentives for corruption in one of the world’s largest public transfer programs, India’s National Rural Employment Guarantee Act. We uncover large-scale embezzlement along multiple margins: theft from beneficiaries and theft from taxpayers. Using exogenous changes in statutory wages, we then test a simple, dynamic model of rent extraction. We find evidence for a “golden goose” effect: when expected future opportunities for rent extraction are high, officials extract less rent today in order to preserve tomorrow’s opportunities. This behavioral response tends to stabilize levels of corruption in the face of external shocks.

Keywords: India, corruption, theft, wages

JEL classification codes: D73, H53, J30, K42, O12

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