Niskanen and Corruption

In addition to the general bureaucratic benefits, bureaucrats in corrupt nations stand to benefit from their extortion. The size of the budget is positively correlated with the amount of that budget that they can extort. This can lead to corrupt bureaucrats having quite strong reactions in response to budgetary changes, as they did when India expanded its budget for the National Rural Employment Guarantee Scheme.  As a paper by Niehaus and Sukhtankar (of UVa!) describes, with the budgetary increase, the availability of future rent from corrupt activities increased, so bureaucrats’ jobs now became more valuable. Thus bureaucrats became more concerned with retaining those jobs. They valued their jobs so much that bureaucrats with a more varied pay structure actually reduced their theft, so that they could limit the probability of their termination. On one hand, this supports the Niskanen model since it demonstrates that bureaucrats aim to maximize their budget. However, it’s less clear how this relates to or supports Nisaken’s emphasis on the senior bureaucrat, since it was the local bureaucrats that stood to gain in India. And even though these local bureaucrats gained from the budgetary increase, how much power did they actually exert to make it happen?

It also opens the question: What happens when a project’s budget doesn’t correspond to that project’s output? The Niskanen model demonstrates that bureaus aim to overproduce, but it hasn’t so far explained the gap between budget and output. Though these gaps and inefficiencies exist in all nations, they are particularly egregious in corrupt nations, where corruption can result in astoundingly high leakage rates. In Uganda, an educational block grant was estimated to have a leakage rate of 87%, meaning that only 13% of the budget actually went to fulfilling the project’s aim.