# **2.1 Why is corruption hard to measure and compare across countries?**

In order to assess the nature and extent of corruption, economists prefer transaction data —who businesses bribe, how much they bribe, how often they bribe, and what is gotten in return for those bribes. Given the illegal nature of these activities, such data are difficult to get. In their absence, many studies have had to settle for perceptions and opinions about corruption to determine its prevalence and nature (Lambsdorff 2006; Kaufmann et al 2007).

While perceptions data are easier to get than direct reports of corrupt deals, using perceptions is problematic. First, it is difficult to pin down how perceptions are formed because corruption refers to activities that are the hidden and largely unobservable. Therefore, perceptions about corruption are likely formed by what people believe to be generally taking place and less so on what is personally experienced. In any one city or country, what people believe to be taking place may start to converge since people read the same newspapers, are exposed to the same political rhetoric and may hear others’ opinions about corruption (Čábelková and Hanousek 2004; Moyal et al. 2004). In the end, people may end up repeating those personally unverified opinions until they become well-ingrained folklore (Andvig 2004).

Second, it is not clear what type of corruption one is measuring when constructing a corruption index (Knack 2002, Weber 2007). Some indexes are based on experts’ assessments of overall corruption in a country. Most often, these experts are either managers of multinational firms operating in these countries or financial analysts who study the investment risk of several countries across the globe. Managers and financial analysts are unlikely to have specific personal experience with having to give petty bribes to get things done. It is also more likely that a CEO has personal experience with a different type of corruption, political corruption, for example, and may refer to that when asked about corruption. In sum, experts in one country may refer to political corruption and experts in another county may refer to the practice of doling out protection money to the local thugs to keep shipments safe and on time.

Third, there is a contextual problem with perceptions as each respondent has his or her own point of reference and it is unlikely to be shared by many (Bertrand et al. 2001). It is possible that individuals do not share the same point of reference even when experiencing the same incident. For example, it is not clear that if a manager considers a country to be “very corrupt” another manager that works in other countries will share the same relative measure of what is “very corrupt.” Among many things, the personality or state of mind of the respondent may affect responses, some seeing the glass half empty and others half full.

Most of these criticisms point out why there is likely to be a gap between perceptions of corruption and direct experience with it. Convincing as these arguments are, there is little direct evidence about the nature or size of this difference between perceptions and experience. Exploiting the perceptions