From left to right: The two runners up, John Cipperly and Ehrik Aldana, and the winners Mihály Fazekas and Bence Tóth

 

We need more imaginative ways of addressing corruption. It is important to generate indicators that can be used by development agencies. U4, supported by DFID, developed a proxy challenge competition to inspire the research community to develop reliable, intuitive, accessible and cost-effective assessment methods that could be useful across country-contexts.

Key criteria for strong indicators are:

  • Validity: Does it measure the type of corruption it is supposed to measure
  • Clarity: Does it capture changes in corruption from ‘other stuff’
  • Comparability: Are the indicators comparable over time
  • Sensitivity: Is it sufficiently sensitive to detect short term changes
  • Scalability: Can it be scaled up at reasonable costs

Proxy Challenge 2016 Winners

This year's proxy challenge competition received 24 submissions. At the International Anti-Corruption Conference in Panama, 1-4 December, the winners presented their innovative indicator. Mihály Fazekas and Bence Tóth, from the University of Cambridge and Government Transparency Institute, won with the proposal Measuring corrupt rent extraction by tracking the misuse of corporate vehicles. 

The proxy indicator looks at the exchanges between private companies and public bodies. The proxy makes it possible to identify potentially corrupt transactions and companies specifically designed for corrupt rent extraction by tracking the corruption risk of a company doing business with government. A company may be ‘suspicious’ for a number of different reasons:

  1. Registration, for example if the company is registered in a tax haven
  2. Financial performance, if the company is overly dependent on the state
  3. Ownership and management, including the age and gender profile of management
  4. Governance, for example the accounting standards and documentation within a company

To construct the proxy, the winners used one simple indicator: the age of the company at the time of their exchange with the state. The age of the company is revealing. Companies created immediately prior to exchange with the government, could be created only for corrupt rent extraction. In this study, companies younger than one year old were deemed to represent a high risk of corruption.

By comparing case studies of Sweden and Hungary, they demonstrate the effectiveness of the proxy. Hungary is considered a corrupt country and the value of contracts awarded to a very young company was considerably higher than the same indicators in the Swedish context.

This proposal won because they have found a simple indicator which can be used in a variety of different contexts. The indicator's main strength is that it is based on objective administrative data and is highly sensitive to change. DFID intend to work with the winners to explore how to deploy this indicator in the field. 

Runner-up:

For further information please see IACC events page with presentations and reports.

 

Fredrik Eriksson

Senior Program Advisor (U4)