European Seminars on the Economics of Crime (ESEC)

This study documents how corruption can result in large-scale welfare consequences by exacerbating the damage from catastrophic events. Using an original dataset of 1,050 buildings from the 2008 Sichuan earthquake in China, I show that buildings constructed when local officials had hometown connections to their supervisors were 75% more likely to collapse than were those built when officials had no such connections. This increased risk may be attributable to higher corruption among connected officials. The findings reveal that the consequences of corruption extend far beyond allocative inefficiency and relatively modest welfare consequences. Moreover, the results demonstrate how the most destructive impacts of corruption are often hidden, becoming apparent only during significant adverse events.