underestimated in the past. Although it is generally recognized that underestimation of corruption is a problem, our results show that it is even more of a problem than seems to have been generally recognized. Hence our paper's title, which borrows a neologism coined by former US President George W. Bush, commenting on how his opponents in the presidential election had severely underestimated him.<sup>3</sup> We implement our methodology using data from the 2010 World Bank Enterprise survey in Peru. The baseline estimate of corruption from that survey is that 18% of firms answer that it is common for similar firms to make informal payments to government officials. For terminological convenience, we will refer to such an answer as "guilt" on the part of the respondent, because this is usually interpreted as an admission of making informal payments, even though the question itself does not specifically ask whether the respondent makes such payments. This standard interpretation of a simple yes/no question about corruption assumes that all respondents are always candid when answering all questions. In contrast, we estimate that 74% of respondents are reticent in answering sensitive questions, that reticent respondents are not candid in answering 69% of sensitive questions, and that 37% of respondents in fact find it common to make informal payments, a doubling of the estimate of corruption. For some subsets of firms the results are even more dramatic. For example, more than 90% of the respondents in small firms exhibit reticence, raising estimated guilt from 30% to more than 90%.

These results assume that reticence and guilt are uncorrelated. However, estimates of the probabilities of reticence and guilt for subsets of survey respondents—by firm sector or age, for example—show that a positive correlation is almost certainly the case. This is also intuitively plausible: the guilty have more to hide. If that is the case, reticence-adjusted estimates of corruption are even higher because the most corrupt are least likely to admit to its existence. Allowing for a positive correlation leads to corruption estimates above 50%, in contrast to the 18% indicated by applying standard analyses of the data that we use.

Of course, if rates of reticence were similar across countries, the findings from Peru would not be particularly worrisome for cross-country analysis: corruption would be underestimated in all countries, but by more or less the same amount. However, if rates of reticence vary across countries then comparisons of corruption could be quite misleading. Hence, we also apply the methodology to a set of Asian countries using data from the Gallup World Poll. Effective reticence—the proportion of reticent respondents times the probability that they are not candid on any specific sensitive question— varies dramatically between countries, with a rate of 21% in Indonesia and 48% in India, meaning that existing estimates of corruption are downward biased by less than 2 percentage points in some countries but by more than 20 percentage points in others.

We note at the outset that these findings do not imply that survey-based estimates of corruption are without value. Indeed, the illegal nature of bribery implies that those involved have strong incentives to hide any evidence of such behavior, so that direct measurement of corruption is in

> 3 See http://en.wikipedia.org/wiki/Bushism, retrieved May 11, 2013.

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