Regulation and corruption: claims, evidence and explanations

Abstract

Definitions of public sector corruption abound but, at its most general, corruption is considered to be the abuse of government resource or power for private gain, an illegal exchange (Varese, 2018). Critical to this definition is the view that corruption is itself a byproduct of high levels of government activity and regulations (Holcombe and Boudreaux, 2015). At the most abstract level, any form of government intervention creates opportunities for corruption, even if we assume that the government intervenes to correct market failures (Acemoglu and Verdier, 2000) and not to further the career of bureaucrats and politicians (Shleifer and Vishny, 1994). This is because, in order to correct market failures, the government needs bureaucracies to make decisions. This generates opportunities for public managers to demand bribes or be corrupted (Acemoglu and Verdier, 2000). In economic models with some heterogeneity among bureaucrats, this principal–agent problem originates a misallocation of resources and increases the size of the bureaucracy.