Monday, November 22, 2010

Measuring the impact of corruption via OR models - the 2G scam in India

The recent 2G spectrum scam in India has taken corruption to epic levels. Large-scale theft is now being expressed as a percentage of India's GDP for convenience of notation. The amount of taxpayer money siphoned off due to the nefarious actions of certain senior ministers that resulted in an inefficient (non system-optimal) resource allocation wrt the 2G spectrum is estimated at 1760000000000 Rupees (1 US$ ~ 45 Indian Rupees), or 1.76 Trillion Rupees. This seems to be a conservative estimate.

If we compare the value of the corrupt allocation with that of the true system-optimal allocation, I wonder if that loss estimate would be even higher?

This large rupee number is something one usually throws out wildly, except that in this case, it is shockingly close to fact. Furthermore, well-known award-winning cable-news journalists (marketed as fair and balanced) have been implicated by an angry public and audio-tapes have surfaced that seem to allegedly point to their dual role as information-sharing lobbyists, working as mediators between coalition partners of the government to ensure a cover-up, as well as scripting and stage-managing TV shows and news articles to alter public opinion. This has been dubbed 'barkhagate' on the Internet - yet another a cliched 'gate' scandal, but this scandal makes Nixon look like an Eagle boy-scout. Twitter-istan is abuzz with #barkhagate.

Obama, during his recent visit to India, referred to the Indian Prime Minister as his 'Guru', partly due to the PM being an economics professor in a past life. Should he now be called the GGuru? He once was an admired man for pioneering India's economic reforms in the 1990s. Sadly, along with that has come scam after scam, and many in India get the feeling that the actual powerful core within the ruling coalition have this 80+ year old ex-professor set up as a fall guy for their series of epic embezzlements (2G is just the latest).

The fair bandwidth resource allocation problem is a very, very interesting OR challenge. Several cool mathematical models, including combinatorial auction, along with clever Benders decomposition based solution approaches have been invented to solve the resultant discrete optimization formulation (e.g., winner determination problem)

So how does corruption impact such OR models? It is an important as well as an interesting question that deserves more formal attention. If corruption is modeled explicitly within a model, then efficiency, cost-minimization, and revenue maximization are no longer the real objectives. Shadow prices and reduced costs will be misleading. Objective function cost coefficients are inflated or discounted based on the intent of the scam. A machine's throughput may be far less that what shows up on paper due to its unknown, substandard quality. The data will be really messy. Ethics-driven regulations and their corresponding constraints will be missing. By definition, optimization algorithms seek out extreme values and push the envelope. Unethically used, such methods will help maximize corruption.

Dubious organizations may simply place the blame on OR models and the analytics, rather than on the crooked ones who misuse it. Like journalism, whose reputation largely lays in tatters, corruption in analytics will have a devastatingly negative impact on the public perception of mathematicians and OR folks who have won respect as truth-seekers. Once lost, such hard-earned goodwill is almost impossible to regain. As OR people, we have a responsibility, both natural and inherited, to maintain high ethical standards and actively seek the truth (or in OR practice, 'the best obtainable version of the truth' as Carl Bernstein would say). After all, the entire theory of optimization and duality is ultimately based on the notion of fairness and rationality. The insidious noise that undermines fair duality has to be recognized early enough, and must be filtered out.

A question will be posted on OR-exchange to initiate a discussion on this important topic.

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