Principal investigator: Eduarda Miller de Figueiredo
Article title: Incentives for Corruption and Inaction in Public Service: An Analysis of Mechanism Design
Article authors: Mauricio Bugarin and Fernando B. Meneguin
Location of the intervention: Brazil
Sample size: Data from the TCU (Brazilian Federal Court of Accounts) 2002-2013
Sector: Economic Policy and Governance
Type of intervention: Effects of senior management and advisory positions (DAS)
Variables of interest: Special audits
Evaluation method: Stacked Least Squares (POLS)
Policy Problem
Laws and judicial decisions provide a set of rules for economic situations that need to be regulated, and cannot be left to the free will of society; this ultimately reflects on the efficiency of economic transactions. Even so, it is necessary for institutions to function perfectly calibrated to allow the economic system to be efficient. In other words, institutions that are too lax can generate abuses, while extremely rigid ones generate excessively cautious behavior. Therefore, a balance between these two opposites is extremely necessary.
Efficiency in the expenditure of public resources is a growing demand from society due to the quality of government services provided. Therefore, the authors sought to evaluate the incentives generated by institutions in the behavior of public managers.
According to Mendes (2011), the current bidding model in the country favors companies that operate with the lowest price, giving opportunities to companies with precarious structures to obtain bids at excessively low prices, receiving advance payments and offering poor quality service. Therefore, Mendes (2011) suggests that there should be the option of free appointment for high-level managerial positions, as these individuals would be the ones to guide administrative policy.
Therefore, the issues evaluated during the research encompass the control of corruption versus the maximization of the social return of the manager's actions, and how temporary employees react to institutional incentives compared to career civil servants.
Assessment Context
According to Tanzi (1998), the efficiency of the public sector is impaired by corruption, because if there is fraud during the bidding process, the winning company may not be the most efficient in providing the service and, moreover, it reduces the effectiveness of public spending with money diverted for personal enrichment. In Brazil, the productivity of public spending is 60% of the productivity of spending carried out by the private sector, according to a comparative study between sectors carried out by Cândido Jr. (2001).
Transparency International's ranking demonstrates the level of corruption in the country. In 2013, Brazil obtained a score of 4,2, which indicates a serious level of corruption, since scores below 5 have this characteristic.
There are two categories of professionals who hold senior management and advisory positions (DAS): (i) permanent career employees (category C) and (ii) commissioned and temporary positions (category T). In this category, the manager, both private and public, is concerned with the social return related to their performance. The more they dedicate themselves, the greater the social benefit they will produce while holding the DAS position.
Policy Details
Considering that different managers assign different weights to the value of their contribution to society and to the private personal return of holding a high-level management position, the authors define two types of managers:
- Social Manager: those who place a high value on their social contribution;
- Private Manager: those who place low value on their social contribution.
Furthermore, in addition to salary affecting the manager's income, it is also affected by the decisions the individual makes in the performance of their duties. In view of this, the authors define three possible distinct decisions:
- Decision N: A manager who fulfills their role by carefully following all regulations, regardless of the outcome, thus posing no risk to themselves.
- Social benefit of the decision:
.
- Social benefit of the decision:
- Decision S: The manager focuses their actions on the potential social return, using instruments that may be questionable in the future.
- Social benefit of the decision:
.
- Social benefit of the decision:
- Decision P: A manager who makes decisions based solely on direct private personal benefit through the misuse of public resources, which may likely lead to future punishment.
- Additional income:
- Additional income:
It is assumed that the private benefit of corruption is greater than the social return of the activity () and that there is a net benefit from innovative actions for the manager regardless of whether the decision S or P is chosen. Since both decisions involve disregarding regulations, there is a risk of future punishment, which is the loss of public office.
Therefore, the authors define that if the manager assigns low value to social welfare, they will prefer decision P, while the manager who assigns high value to social welfare will reach the following conclusion:
The manager prefers to take risks in corrupt activities for the benefit of society rather than for personal gain.
The manager prefers to take risks in corrupt activities for personal gain rather than risk his life for the benefit of society.
Methodology Details
To assess the potential relationship between the practice of crimes in public administration and the presence of appointed officials in ministries, the variable of Special Audits (TCE) sent to the Federal Court of Accounts was used. The controls used are: percentage of DAS positions occupied by career employees, expenditure executed by the ministry, number of DAS positions, total number of employees in the ministry, and types of ministries.
Because they had panel data, and after a series of tests, the authors chose to estimate the model using the Stacked Least Squares (SLOS) method.
Results
Between 2002 and 2013, the average percentage of commissioned positions occupied by tenured civil servants was around 65%, varying from 15% to 93% among ministries. The Ministries of Finance, Science and Technology, and Development, Industry and Commerce had the highest percentage of career civil servants filling commissioned positions, perhaps because these ministries deal with more complex matters.
Chart 1: Evolution of the filling of commissioned positions by career civil servants.
However, even though the Ministries of Tourism and Sports have the lowest participation of career civil servants in DAS positions, both ministries were featured in national news coverage for their involvement in scandals concerning the misuse of financial resources. Thus, according to the authors, this evidence may suggest a more opportunistic behavior on the part of people who do not have a permanent link to the public service.
The main results estimated through POLS demonstrated the same effect suggested by the theoretical model, that is, the more career civil servants occupying DAS positions, the lower the occurrence of TCEs per authorized budget unit. In other words, reducing the relative participation of career civil servants in DAS positions in a ministry by 10 points can generate around 7 TCEs per billion of expenditure for that ministry.
Furthermore, another result suggests that increasing the number of DAS positions may be beneficial to public administration, suggesting that some TCE processes may be motivated by administrative incompetence.
Another point made by the authors is that actions taken outside the law are treated with the same severity, regardless of whether they were motivated by corruption or by the desire to improve the social outcome of public policies.
Lessons in Public Policy
In general, the study demonstrates the need to consider a way to motivate career civil servants to take actions that will result in improvements in public administration. Furthermore, it was observed that the filling of DAS (Directorship and Advisory Services) positions should adopt merit-based criteria instead of political criteria.
Reference
BUGARIN, Mauricio; MENEGUIN, Fernando B. Incentives for corruption and inaction in the public service: An analysis of mechanism design. Estudos Econômicos (São Paulo), v. 46, p. 43-89, 2016.
