The harm to social welfare by corruption and lobbying depends on the gains those manipulations of the system could make, an economics professor at the University of Belgrade said.

President of the Center for the Liberal Democratic Studies, a tink tank in Belgrade, Serbia, Boris Begovic gave a lecture titled ‘Corruption, Lobbying, and State Capture’ at the Harvard Kennedy School of Public Policy on Monday to an audience of 15 as part of the Kokkalis Program on Southwestern and East-Central Europe.

The lecture and Begovic’s upcoming paper focus on the effects of lobbying and corruption on a nation. Additionally, his research recognizes the inherent ambiguity in what corruption and lobbying actually are.

‘Corruption and lobbying are considered alternative methods to state capture,’ Begovic said.

Corruption is a violation of the law, whereas lobbying is a legal activity, he said. State capture encompasses the advantages of strategic private influence on public policy.

Begovic’s model for the effect of these actions is based on the economic issues that arise when free markets are affected by the practice of seeking rent through lobbying or the corruption of political figures, he said.’

Rent seeking is the practice of gaining an advantage as a supplier and raising prices to maximize profit unfairly, usually the work of monopolies, he said.

When a business can essentially name the price for its product, Begovic said, the public loses out because of a lack of competition with other firms. His model quantifies this loss based on several characteristics of a nation’s industrial organization.

The main factors in his model are the level of corruption, the maximum return on and investment into rent seeking, the different transfer costs of lobbying and corruption and the probability of being caught, he said.

The model is also based on the assumption that lobbying is already a legitimized practice within the country of interest. Although it is an everyday part of American government, Begvoic said this is not the case elsewhere in the world.

‘In many countries, there are many rules and regulations that provide for transparency in lobbying,’ he said.

Begovic has found that lobbying is less damaging to social welfare when the revenues associated with rent seeking are high, though there is little actual evidence of this from research, he said. When there is a lot to be gained, lobbying is not as bad as corruption, but when the revenues are small, corruption actually leaves society better off than lobbying, he said.

Begovic said this is only the beginning of the research and future research should focus on ‘industrial organization of corruption and lobbying,’ he said.

Kokkalis coordinator Ilyana Sawka said Begovic’s work has been very influential.

‘[Begovic] characterizes the types of academics we try to bring to Harvard, people with fresh perspectives and innovative research,’ she said.’

Rachel Brown, a Tufts University senior, said the lecture was very interesting.

‘I hadn’t looked at the actual transactions of corruption and the alternatives,’ she said.

She said she sees Begovic’s ideas reflected in American politics.

‘Campaign financing often blurs the lines between lobbying and corruption and what is legal activity versus illegal activity,’ she said.