Deterrence, Peer-Effect, and Legitimacy in Anti-Corruption Policy: An Experimental Analysis

In our framed laboratory experiment, two Public Officials, A and B, make consecutive decisions regarding embezzlement from separate funds. Official B observes Official A’s decisions before making his/her own. We find a contagion effect of embezzlement in that facing a corrupt official A increases the likelihood of embezzlement by Official B. Likewise, deterrence matters in that higher detection probabilities significantly decrease the likelihood of embezzlement. Crucially, when the same deterrence policy applies to both officials, detection is more effective in curbing embezzlement if chosen by an honest public official A rather than a corrupt public official A. This legitimacy effect may help explain why anti-corruption policies can fail in countries where the government itself is believed (or known) to be corrupt.