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ByUgo Panizza

In my discussion (available here), I made the point that evaluating institutional quality was incredibly difficult and that coming up with a cost and benefit analysis of possible reforms was mission impossible.

Then, I came up with a crazy proposal aimed at providing incentive for reporting corruption in Latin America. The premise is that auditing and transparency can play an important role in reducing corruption and that effective auditing agencies require independent media. However, in several countries the government has subtle ways to influence the media and thus limit their monitoring role. Moreover, in several countries newspapers and TV channels are often perceived to be partisan. Reporting of corruption by an opposition newspaper is often dismissed as being motivated by a political agenda.

Reporting by prestigious international newspapers is often perceived to be more balanced and impartial and the news produced by the international newspaper can be disseminated within the country by local newspapers and bloggers. One problem is that the market does not supply enough of such reporting. The New York Times is more likely to publish a story about Paris Hilton than a story about corruption in some unknown Latin American country which does not even have a Hilton Hotel. As a consequence, able freelance investigative journalists will have more incentives to write stories about Paris Hilton than about corruption in Latin America.

My crazy proposal aims at addressing this situation. The IDB (I chose this institution because it was the sponsor of the event, but any other agency with deep pockets would do) could establish a list of ten or so prestigious international newspapers and magazines (of the caliber of the New York Times and The Financial Times, for instance) and pay a $20,000 premium (discussants at the conference suggested that the premium may need to be higher) to each journalist who manages to publish a major story about misgovernment (Ernesto Stein suggested to include good government) in Latin America in one of these journals. An important feature of this proposal is that the premium should be automatic. After the author publishes the article she can directly collect the money from the IDB, no questions asked. Otherwise, member countries that are offended by a given article could prevent the IDB from awarding the prize or accuse the IDB of being biased against a given country and/or government.[1]

Of course, this premium will provide incentives to write articles but not to publish them. However, if the prize increases the supply of good articles, it is likely that the newspapers in the list will publish some of them. Moreover, even if an article does not get published in a major journal, it is still likely to be published in some other journal and have some effect on reporting on corruption and bad government. The impact might be smaller, but the cost (from the point of view of the IDB) of this article will be zero. 

What would the costs and benefits of such policy be? Here, I went from crazy to completely mad and computed that the net benefits amount to 1.7 trillion PPP-adjusted dollars. Of course, I don’t believe in this number, but I still think that the idea of creating third-party quality control about news on institutional quality in developing countries is a good one.

You can read more here.

Acknowledgment: I think that I got the idea from something I read on Marginal Revolution. Probably this piece