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Monitoring Corruption: Evidence from a Field Experiment in Indonesia

By: Benjamin A. Olken

This resource was published as Working Paper 11753 by the National Bureau of Economic Research as part of their Nber Working Paper Series.

This paper uses a randomized field experiment to examine several approaches to reducing corruption. It measures missing expenditures in over 600 village road projects in Indonesia by having engineers independently estimate the prices and quantities of all inputs used in each road, and then comparing these estimates to villages’ official expenditure reports. It finds that announcing an increased probability of a government audit, from a baseline of 4 percent to 100 percent, reduced missing expenditures by about 8 percentage points, more than enough to make these audits cost effective. By contrast, it finds that increasing grass-roots participation in the monitoring process only reduced missing wages, with no effect on missing materials expenditures. Since materials account for three-quarters of total expenditures, increasing grass-roots participation had little impact overall. The findings suggest that grass-roots monitoring may be subject to free-rider problems. Overall, the results suggest that traditional top-down monitoring can play an important role in reducing corruption, even in a highly corrupt environment.