The New Economics of Corruption: A Survey and some New Results

Abstract

Governments of all political colours in countries of all levels of wealth are a€ected by corruption scandals with a frequency and intensity that seems to be always on the increase. Corruption has become a `hot issue' and is now a major topic of political competition, even in the industrialized democracies. Yet, to a large extent, economists have remained vague about what can be done to reduce it. A main concern is the lack of evidence in support of the main policy alternatives. This paper reviews the state of economic knowledge on the phenomenon of corruption, with special emphasis on the theory behind the most common policy proposals and the evidence that supports them. During the last thirty years or so economists from di€erent ®elds have made scattered contributions to the analysis of corruption, so that by now a certain body of literature has emerged. The ®rst published piece on corruption that received wide attention is Rose-Ackerman, though the topic was also in the minds of people doing research in the economics of crime, agency theory, rent-seeking, and development economics. While theories abounded, a lack of data on corruption to test the theoretical contributions allowed con icting theories on the causes and consequences of corruption to coexist. As a result, the ®eld has been unable to provide coherent policy guidelines to curb corruption and has remained somewhat disconnected from the discussion arena, a place mainly dominated by lawyers, businessmen and judges. More recently, an emerging body of empirical research has begun to appear, employing subjective indices on corruption produced for businessrelated purposes. We organize the literature into two broad themes: theories about the causes of corruption and theories of its e€ects. With regard to the latter, we show how the new data has shed light on a controversy that originated in the 1960s about the theoretical possibility that corruption may