Sometimes It Pays to Be Corrupt

Maxim Mironov

Maxim Mironov

Maxim Mironov of the IE Business School in Spain, has some research showing that corruption can lead to success. At least it appears to be successful in Russia. Mironov devised a method for measuring a Muscovite’s “propensity to corrupt” using data on traffic accidents and traffic violations from 1997 to 2007. He then used this data to analyze the managements of tens of thousands of Russian companies.

According to his research, one standard deviation increase in his “propensity to corrupt” of firms’ management corresponds to an increase in the annual revenue growth rate by 1.9%.

Mironov started with a huge database of traffic violations in Moscow, with 6.7 million violations over a 10 year period. He then mixed that together with the data on 159,000 traffic accidents, drivers license information, and type of automobile. Using the drivers’ license data he tied employment information for the individuals.

An average driver commits 0.115 traffic violations per year and participates in
0.003 traffic accidents per year.  An average driver is 38.9 years old and has a driving experience of 3.3 years.  An average person earns $6,640 per year and travels 15.2 kilometers to
work.

He his calculation on a “propensity to corrupt” is based on variations on the number of reported traffic violations and how that differs from the average. People with similar driving habits, similar demographic characteristics, and  income level should have similar numbers of reported traffic violations. But Moscow is notoriously corrupt and traffic stops can end in an exchange of cash instead of a reported traffic violation. Mironov uses that decreased level of traffic violations as an indication that the person was willing to pay a bribe instead of the reported traffic violation. That measure then becomes his Propensity to Corrupt.

Assuming you agree with Mironov’s propensity to corrupt at a correct measurement you can come to the conclusion that management’s propensity to give bribes leads to improved performance of the company. You can look at it data another way and say that corruption leads to a marked decrease in corporate performance and the economy as whole.

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