costs to low road quality, maintenance expenditures for roads are low across the developing world. A recent estimate for Latin America suggested maintenance expenditures were approximately half of the level that they should be, at one percent of GDP, and that raising them to an appropriate level would increase GDP itself by 1.87 percent (Rioja, 2003).<sup>17</sup> Different forms of corruption carry significantly different ‘multiplier effects’ in terms of their development impact, then. For example, the impact of stealing one dollar’s worth of supplies from a road construction project is as much as four times higher than the impact of a dollar increase in contract costs due to collusion (Kenny, 2006).<sup>18</sup> If the impact of corruption is to skew expenditures towards low-return projects or to reduce expenditures on maintenance, the multiplier effect may be many times higher again. Table 3 suggests estimates of the size of corrupt payments in various steps of the project cycle as well as the likely ‘multiplier impact’ of payments in terms of development outcomes. The table suggests that a focus on reducing the most damaging impacts of corruption will have to be broad, looking at overall budgeting issues --ensuring the resources dedicated to new construction are not diverted from required maintenance funding for example-- and ensuring that the outputs of construction projects are built to a high (safe, long-lived) standard.

An economic approach to corruption suggests an additional insight –there can be worse things than a bribe payment. One way to avoid corruption in competitive bid processes, for example, would be to sole source all contracts to a single firm –but this would be unlikely to improve overall development outcomes. Analysis of BEEPS data suggests that corruption is viewed by firms as a less effective substitute for lobbying (Campos and Giovannoni, 2006). This suggests that an effort to increase the power of firms to lobby (easing limits on campaign contributions, for example) may reduce corruption while worsening development outcomes. Again, anti-corruption measures, much like other regulation designed to minimize market or government failure, can carry higher costs than the economic benefit of the reduced corruption that they are associated with. Ben Olken’s examination of anti-corruption interventions in community-driven road projects in Indonesia suggested that sending out invitations to village meetings to discuss projects might fall into that category, for example (Olken, 2004). Such cost-benefit analysis of specific anti-corruption interventions has been sadly limited to date.

# **What Reduces Corruption in Construction**

Construction firms bribe in order to obtain contracts, to increase profit margins on those contracts and to reduce the cost of construction. Given that, corruption is likely to be

> 17 Similarly, in Cameroon, between 1981 and 1997, the maintainable road network increased from 2,700km to 4,000km 1991-1997, but in 1997 only 31 percent of paved, and only 13 percent of unpaved roads were in good condition.  Across Africa, estimates suggest that funding for maintenance is considerably below needed amounts (but also that what is spent is spent poorly)  (Stein Hansen Consulting, 2000).

> 18 In Indonesia, Olken (2004) estimates that a marginal dollar of materials stolen from a road project reduces the discounted benefits from the project by $3.41 because of the shorter life of the road when built with insufficient material.

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