WHY ARE SOME PUBLIC AGENCIES LESS CORRUPT THAN OTHERS? LESSONS FOR INSTITUTIONAL REFORM FROM SURVEY DATA *

This paper studies microeconomic data on corruption at the public agency level in eight developing countries, trying to understand which features of the agency influence corruption, and how to curb corruption inside each agency. The sources of the data are surveys of the employees working inside each public agency, as well as customers of the agency (households or firms). We find that corruption is influenced by two kinds of variables. On the demand side, corruption is more prevalent among agencies that provide services to firms (rather than households), and that provide an exclusive service for which there is no alternative. On the supply side, the internal organization of the agency is a major determinant of corruption. Three features of the organization are systematically associated with less corruption: having decisions regularly audited by external or internal auditors; maintaining open and transparent procedures; and basing personnel decisions on criteria of merit and professional competence. Moreover, the procedure for appointing the head of the agency also matters. Agencies whose head is popularly elected are systematically more corrupt and adopt worse internal organizations, while independent agencies whose head is appointed by a political body tend to have better organizational design.

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