There is a rational basis for the pervasive and seemingly endemic nature of corruption in Nigeria. A behavior is irrational only if a decision agent persists in expressing it even when its costs far outweigh its benefits; if it cannot be predicted or anticipated by any known rules; if no phenomenological or normative models can describe it; and if no a priori estimations are possible for capturing the conditions under which it would emerge. If these conditions for irrationality are applied to corruption in Nigeria, it turns out that behavioral models support the idea that corrupt behavior in Nigeria is perfectly and indubitably rational.
There is a rational basis for the pervasive and seemingly endemic nature of corruption in Nigeria. A behavior is irrational only if a decision agent persists in expressing it even when its costs far outweigh its benefits; if it cannot be predicted or anticipated by any known rules; if no phenomenological or normative models can describe it; and if no a priori estimations are possible for capturing the conditions under which it would emerge. If these conditions for irrationality are applied to corruption in Nigeria, it turns out that behavioral models support the idea that corrupt behavior in Nigeria is perfectly and indubitably rational.
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In a previous article, I applied simple rational choice theoretic rules to explain why corruption thrives in Nigeria. The theory was also used to identify some critical areas where public policy efforts should be focused if corruption is to be tamed. At the time, I had made assumptions about certain important variables used in the models. Now, those assumptions can be replaced with data that is now available from the EFCC, ICPC and other sources.
Background
Rational Choice Theory is the standard approach used by economists and other social scientists to explain why individuals make the decisions that they do. The field of rational choice theory is one of the most intensely researched in the social and behavioral sciences ad has spawned several Nobel Laureates, and a healthy body of real world experience has developed which validate its views of human behavior. The behavior of stockholders, economic cycles of boom and bust, criminal behavior, and a host of everyday phenomena are explained by this theory.
At its core, rational choice theory is based on simple and intuitive concepts. It assumes fundamentally that humans make decisions based on certain rules, that the benefits and costs of choices are evaluated, and that the choices that are selected are those that maximize value. How do we weigh these benefits? Given an option, W, which has a probability of occurrence, P, the expected benefit from making a choice is given by the multiplication of the option, W and the probability P. In simple mathematical terms, we would say that:
Expected Benefit = W x P.
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All choice options have corresponding costs. Therefore, given a Cost, C with a probability of occurrence P', the expected cost of the option is given as:
Expected Cost = C x P'.
The Expected Net Benefit is the difference between the expected benefit and the expected cost. In effect, the expected net benefit of any option W with probability of occurrence P, and a cost C with probability of occurrence P' is given as:
Expected Net Benefit = Expected Benefit - Expected Cost = W x P - C x P'.
Whenever the Expected Net Benefits are greater than zero, i.e., non-negative, the choice is one which a rational decision maker is expected to make. If the Expected Net Benefits are negative, the rational thing to do is to turn down the option.
Corruption Cost Probabilities in Nigeria- What the Data Says
The cost of corruption derives exclusively from administrative, disciplinary or legal prosecutorial action taken against the offender. For an offender to pay a price for engaging in corrupt practices, three things must happen. (1) The offender must be reported or discovered (2) the offender must be prosecuted and (3) a conviction must be secured against the offender.
These three prerequisites for establishing a cost or penalty for corruption have associated probabilities.
Probability of discovery (1.68%): The ICPC or EFCC require that petitions be written against offenders before they act. We can therefore define the probability of discovery as the number of reported corruption cases as a fraction of the total incidents of corruption committed. How do we establish the number of corrupt incidents in Nigeria? We will not attempt to sum up every incident of bribe taking at check-points and the millions of illegal payments that occur daily, and focus instead on corporate bribery and corruption and sundry financial crimes cases involving public officials. These are the types of cases that the ICPC and EFCC are charged with addressing. Because these two agencies and their actions (or inactions) determine the public perception of the seriousness with which corruption is being addressed, it is appropriate to focus on them.
In a recent survey jointly commissioned by the UNODC, EU and EFCC, about 9% of Nigerian enterprises indicated that they routinely give bribes to public officials. There are about 398,453 registered companies in Nigeria. If we conservatively estimate that each corporate enterprise that reports that it bribes public officials records only one bribery incident per year, in the twelve years since both the ICPC and EFCC have been around, there would have been about 430,329 (i.e., 398,453 enterprises x 9% bribery rate x 1 bribery incident per year x 12 years) cases of bribery in Nigeria. Since inception in 2003 the EFCC has received at least 5,400 petitions, while the ICPC (established in 2000) has received at least 1,846 petitions, making a total of 7,246. As previously defined, the probability of discovery is therefore given as the reported cases (petitions) divided by total corrupt occurrences, i.e., 7,246/430,329 = 1.68%.
Probability of prosecution (4.8%): No readily available dataset provides prosecution rates up to the current time. Historically (as of 2008), the EFCC had prosecuted 300 cases from 5,400 petitions, while the ICPC had prosecuted 49 of 1,846 cases. This implies that a total of 349 cases were prosecuted, from a base of 7,246 petitions, giving a Probability of prosecution of 4.8 % (i.e., 349/7,246). It is possible that this number might vary, since both agencies continue to investigate and prosecute past petitions. However, since the number of new petitions would have increased over the same period, the variation from the values estimated here are unlikely to be significant.
Probability of conviction (47.3%): Of 300 arraignments that were made, the EFCC secured 145 convictions, while the ICPC secured 20 convictions from 49 cases. This implies that 165 convictions were secured from 349 prosecuted cases, giving a Probability of conviction of 47.3% (i.e., 165/349). This number might be on the high side since the convictions reported are for individuals prosecuted. Some petitions and cases have multiple defendants, and those will bias the conviction rate upwards since each individual conviction will be counted.
Probability of corruption cost = Probability of discovery (1.68%) X Probability of prosecution (4.8%) X Probability of Conviction (47.3%) = 0.04%.
Before we proceed we should understand what this number means. It implies that given the realities of our current corruption enforcement regime in Nigeria, the probability that there will be a cost associated with corruption is 0.04%. With the relevant probabilities established, we can now apply the concept to two hypothetical corruption cases.
Case 1: Current Enforcement Regime
A 45 year old Director General in the Nigerian Civil Service earns N8m annually (including allowances, rent and home ownership subsidies and other emoluments). He has the opportunity to corruptly enrich himself to the tune of N10 m. If caught, he will suffer reputational damage, spend some time in jail and lose his pension entitlements. He estimates that the losses he will suffer if caught and prosecuted will come to about N5 m annually. These losses can be calculated as a perpetuity, which at an assumed 10% interest rate (assumed long run inflation value for Nigeria) gives estimated lifetime losses of about N50 m (i.e., N5m/10%). Should he corruptly enrich himself?
Answer: Yes. The Expected Net Benefit is positive (+N9.98 m).
1. Probability of getting embezzled amount (P1)= 100%
2. Probability of discovery (P2) = 1.68%
3. Probability of prosecution (P3) = 4.8%
4. Probability of conviction (P4) = 47.3%
5. Estimated Lifetime Losses (C) = N50 m
6. Gains from Corrupt enrichment (W) = N10 m
Expected Net Benefit = P1 x W - P2 x P3 x P4 x C
Expected Net Benefit = 100% x 10 m – 1.68% x 4.8% x 47.3% x 50 m = 10 - 0.02 = N9.98 m.
Case 2: High Enforcement Regime
Consider the case of the same civil servant, and assume that now the enforcement and judicial environment is radically different. The government has instituted a policy that rewards whistleblowers who report corrupt officials with 2.5% of the total embezzled amount, which has caused the probability of discovery to increase to 50%. There is also a 2.5% bonus reward that goes to the lawyers who prosecute the cases if there is a successful conviction, causing the probability of prosecution to increase to 50% and the probability of conviction to increase to 90%. Would the Civil Servant still corruptly enrich himself in this new enforcement regime?
Answer: No. The Expected Net Benefit is negative (-N1.25 m).
1. Probability of getting embezzled amount (P1)= 100%
2. Probability of discovery (P2) = 50%
3. Probability of prosecution (P3) = 50%
4. Probability of conviction (P4) = 90%
5. Estimated Lifetime Losses (C) = N50 m
6. Gains from Corrupt enrichment (W) = N10 m
Expected Net Benefit = P1 x W - P2 x P3 x P4 x C
Expected Net Benefit = 100% x 10 - 50% x 50% x 90% x 50 m = 10 - 11.25 = -N1.25 m.
Public Policy Implications for Nigeria from Rational Choice Theory
While these examples are hypothetical, the implications are clear. The self-interest of people and the proven rational basis for much of human behavior can actually be used as tools to be applied for cracking down on corruption. Rational choice theory suggests that if corruption is to be tackled effectively public policy must focus on four major issues, i.e., (i) increasing the likelihood of getting caught i.e., probability of discovery, (ii) increasing the probability of prosecution (iii) enhancing the probability of conviction and (iv) raising the consequences of corruption by corrupt officials.
(i) Encourage whistleblowers to increase probability of discovery. There is always a long line of clerks, messengers, cashiers, accountants, personal bankers, colleagues, contractors and auditors that are privy to every single act of corruption. Right now, these people keep quiet because there are no incentives to make them come forward with the information that they have. Imagine what would happen if a law was enacted that guaranteed a reward of 2.5% of the recovered proceeds of corruption to a whistleblower (the payout should probably be capped, otherwise the incentives become perverse). There is no doubt that the EFCC, ICPC and other anti-corruption enforcement authorities would be inundated with all types of information about corrupt activities. As a consequence the likelihood that corrupt acts by public officials will be reported should increase, thereby increasing the costs to the perpetrators of corrupt activities.
(ii) Provide Incentives to Lawyers to increase probability of prosecution: Many petitions to the ICPC and EFCC are not investigated or brought to prosecution. Even where corrupt officials are investigated and prosecuted, we have seen situations where their trials drag on forever, or the cases are dismissed because of the ineptitude and sloppiness of the lawyers charged with their prosecution. To get prosecution rates up, it will be prudent to provide an incentive that rewards the timely investigation and successful prosecution of cases. Guaranteeing some portion of the recovered sums to successful anti-corruption prosecutors could help in this regard. In the corporate world, where shareholders are faced with what is called the Principal-Agent problem, the commitment of the CEO and other executives to making sure that their (the executives') focus is on growing shareholder's wealth is secured by making stock options part of the compensation package. If the stock does well, then the executives benefit as well. To increase prosecution rates, the anti-corruption agencies could also be given petitions conversion targets, while a separate inspectors unit can be established to provide internal oversight to monitor the quality of the petitions conversion process.
(iii) Increase the penalties associated with corruption: As the cases we considered suggest, a critical element that determines the expected net benefit (or loss) of corruption is the magnitude of the lifetime penalties suffered. In all the instances considered, if the lifetime losses had been more extreme, the expected net benefits of corrupt activity would have greatly reduced. Some of the steps that could be taken from a public policy perspective to increase the costs to the perpetrators of corrupt activities includes severely restricting the economic opportunities available to people convicted of corruption, stronger enforcement of the recovery of assets acquired from the proceeds of corruption, and the introduction of punitive acts that far exceed the benefits of the proceeds of corruption. For instance professionals like lawyers, doctors, accountants, bankers and engineers who have been convicted of corruption could be stripped of their charters and/or licenses – thereby imposing huge lifetime economic costs on them. Convicted embezzlers could be excluded from participation in politics and barred from sitting on boards of public companies or corporations.
Conclusion
If claims to religious faith and spirituality are sufficient deterrents for corruption, Nigeria should be the world’s least corrupt nation. We are instead, one of the world’s most corrupt nations. Corruption is not endemic to Nigeria. The analysis of the results of the anti-corruption effort in Nigeria indicates that it is the weak enforcement regime that exists in the nation that encourages corruption. If as we have demonstrated corruption is rational under the current enforcement regime, then the converse must hold – that what is irrational is to be incorruptible. And of course, the evidence for the rationality of Nigerian corruption is all around us. A nation in which it is normal for corrupt persons to receive rapturous welcomes upon their return from jail (like Bode George and Alamieyesiegha), return straight back into politics unscathed (like Abubakar Audu and Orji Kalu), get a slap on the wrists for outrageous acts of corruption (like Lucky Igbinedion), avoid prosecution altogether (like Andy Uba), and have their trials predictably botched by the agencies responsible for their prosecution (like Bankole and Nafada), is clearly one in which corruption has become a rational, perhaps immoral, but assuredly rational act.
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