Is Indonesia the 137th most corrupt in the world?

corruption ▪ economics ▪

According to business people surveyed (documented in Transparency International's 2005 Corruption Perception Index), we are. But how accurate is this? Ben Olken's recently published NBER working paper, based on his village road corruption research, shed a light on the issue:

I find that villagers’ beliefs do contain information about corruption... in the road project, and that villagers are sophisticated enough to distinguish between corruption in the road project and other types of corruption in the village. The magnitude of their information, however, is small..., in part because officials hide corruption where it is hardest for villagers to detect. This may limit the effectiveness of grass-roots monitoring of local officials. I also find evidence of systematic biases in corruption beliefs, particularly when examining the relationship between corruption and variables correlated with trust.... For example, ethnically heterogeneous villages have higher perceived corruption levels but lower actual levels of missing expenditures.

Perception index matters for anti-corruption politics, but needs to be taken with a grain of salt.