The Use of Experimental Economics to Adress The Issue of Corruption Worldwide

Corruptions in public & government agencies exist globally, disturbing worldwide economy through money laundering, with various forms such as embezzlement, bribery and abuse of powers. As reported by the Bloomberg in May 2018, the recent Malaysian 1MDB scandal involved more than 10 countries to launder the embezzlement of Malaysian public funds. This is in the hand of regulators and law enforcers to prevent this scenario from happening again in the future by considering the characteristics and causal effects, as a principal base to form better regulations and investigations. In this statement, I would like to examine whether the experimental economics can be used as references to generalize the characteristics of this issue worldwide and to aid the policymakers/regulators in this matter.

To begin with, the benefits of experimental economics is that we can clearly see the characteristic of fraudulent activities based on small sample size. This will make us understand on how the corruption mechanisms work in the economic events, whether they consider some aspects such as rules, norms, politic, and social preferences or they just focus highly on their own self-interest. We can analyse the data and then evaluate on how the public officers perform the frauds. Subsequently, we can establish practical preventive actions and regulations to react and avoid these actions. In China, as mentioned by Yu (2008), corruption is generally conducted by government officials by abusing the powers and embezzling the funds for their own gains. In other words, the corrupted officers use their powers to maximize their wealth by creating systematic businesses and organizing government tenders & procurements for their partners and relatives. In my opinion, it is agreed that the feasible measures which can be taken by policymakers here are by forming better anti-corruption commissions and supervision, in order to mitigate this type of corruptions. Moreover, with experimental economics, Fehr (2014) stated that several factors which are not easily observed in the real world can be observed in the experiment. Hence, this may capture the majority perspectives in the fraudulent activities whether they have been identified previously, or never been identified at all.

However, this method comes with arguable drawbacks as well, where we cannot simply apply this experimental result to the world’s bureaucracy. This is because human behaviour is affected by various perceptions which we cannot generalize from just a small sample. As stated by Levit and List (2007), the choices that individuals make is highly dependent not only on financial implications, but also on the circumstances, multiple variables, and context where a decision is embedded, and the way in which experimental samples are selected. Especially in developing countries, the law and regulations are not well established which provide more opportunities to conduct corruption and frauds. Knutsen et al (2016) stated that in Africa, the mining industry there is frequently corrupted by giving/receiving the bribery. From Morland (2018), we are informed that doing businesses in India commonly involve bribery activities. In these cases, we should take other measures to mitigate these corruptions, starting from formal education to teach future generation about bribery avoidance until strong efforts for transparency and supervision in government entities. Additionally, the experimental economics also can be easily manipulated as described by Al-Ubaydli and List (2012) and this may incur additional costs and research manpower, as the result of the experiment in one country, cannot be easily implemented in another country.

In conclusion, we cannot generalize the result of experimental economics, at least for this corruption issues where we must understand the whole process of each proceeding. Furthermore, this may differ from one country to another since the result is specific to certain situations and settings. The example of fraud cases in China, India and Africa display diverse options of policies, depending on the nature and circumstances, that should be created by the respective authorities. The variances in the way of people thinking and the above-mentioned factors may influence players’ decisions in directing frauds and corruptions which ultimately affecting the entire world economy due to money laundering activities. Therefore, I believed that legislators and concerned parties need to carefully examine and use this method based on specific cases and backgrounds.