_Surveys are usually carried out in cooperation with business organizations and government agencies promoting job creation and economic growth, but confidentiality is never compromised."_<sup>6</sup> We use a CQ that is the basis of a very common measure of corruption—the first item of data that the reader encounters when perusing the World Bank's summary of results from the Peruvian survey.<sup>7</sup> The question asks whether firms are expected to give gifts to public officials "to get things done". Appendix A contains the precise wording of all survey questions used in this paper. Of the 134 countries that the World Bank has surveyed on this question, Peru is ranked the 44th most corrupt. In the subsample of firms that we use—the 707 firms for which we have complete data for both the CQ and all RRQs—18% of firms expect to give informal payments to government officials.<sup>8</sup> Absent any concerns about respondent reticence, this would be our baseline estimate of corruption in Peru. However, as we shall see, our estimates of the incidence of reticence imply that this is a serious underestimate of the actual prevalence of corruption.

Our RR methodology presents survey participants with a series of ten sensitive questions, listed in Table 1. Respondents privately toss a coin before answering each question and are instructed to answer "Yes" if the coin comes up heads. If the coin comes up tails, they are instructed to answer the sensitive question truthfully. The series of ten questions includes three that ask about less sensitive acts. We do not use the data from these three questions: their inclusion is to give sophisticated reticent respondents the chance to answer "Yes" occasionally without affecting the data that we use. The seven more-sensitive questions used in the analysis are identified in bold in Table 1, but were not so highlighted in the questionnaire itself.

As discussed above, the conventional rationale for deploying RRQs is that they give respondents the opportunity to "camouflage" their responses: the interviewer will not know whether a "Yes" response is actually an admission of guilt or simply the outcome of a coin toss. This in turn is expected to encourage greater candor on the part of respondents. However, as noted above, the success of RRQs in reducing reticent behavior has been shown to be limited. Instead, we initially follow the insight of Azfar and Murrell (2009) who infer the prevalence of reticent behavior from the number of respondents whose answers contain the highly improbable seven "No's" to the seven sensitive RRQs. Based on this, a baseline estimate of reticence is 23.6%.

The top panel of **Figure 1** exhibits the justification for this methodology and why this baseline estimate does not capture all those who are reticent. It shows the actual distribution of "Yes" responses in the Peru survey, and the actual distribution for those who answered yes to at least one question. In addition, it superimposes the hypothetical distribution of responses that would be observed if there were no reticent behavior, and if no respondents had actually done any of the sensitive acts described in the questions. Under this null hypothesis, the number of "Yes" responses should be binomially

> 6 Full details of the methodology can be found at http://www.enterprisesurveys.org/Methodology.

> 7 <u>http://www.enterprisesurveys.org/Data/ExploreEconomies/2010/peru</u>

> 8 Our estimates differ from those on http://www.enterprisesurveys.org/Data/ExploreEconomies/2010/peru for two reasons.  First, we restrict our sample to those who have answered the RRQs.  Second, we do not apply the sampling weights that are used to produce the World Bank estimates.

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