Corruption and output composition

How does corruption skew the mix of outputs? Do we get too many dams and too little education?

Corresponding lesson: http://mruniversity.com/corruption-and-output-composition

One of the problems with corruption is
that sometimes you get the wrong outputs,

the wrong kinds of output.

Let's compare two kinds
of government projects.

The first kind of project is local,
small-scale, labor-intensive.

Imagine educating children in a village.

The second kind of project
is very glamorous.

It's capital-intensive.

It has a lot of hard-to-value
inputs and outputs.

Imagine, for instance,
government building a large dam.

With which kind of project
is it easier to skim money off the top?

Well, when the inputs
of the project are opaque,

when the project lacks transparency,

and when there are large expenditures
running both in and out of the project,

in that case, it's probably easier
to have bribery and corruption.

So what's the result of this?

A lot of governments will build
too many large-scale capital projects

with hard-to-value inputs and outputs

and perhaps too few small-scale,
local labor-intensive outputs,

such as educating children in a village.

And again, this is a distortion
driven by corruption.

This argument comes from a paper
called "Corruption"

by Shleifer and Vishny.