Corruption in State Administration

Abstract

Corruption can arise in any bureaucracy with the authority to allocate benefits and impose costs. This paper articulates general economic principles that can help identify corrupt incentives and guide reform. It draws from models of bureaucratic behavior, especially the economic literature on asymmetric information and sanctions. In this literature, individuals are expected to make rational choices given their preferences and the limited information at their disposal. The paper applies basic economic ideas of scarcity, competition, sanctions, and incentives to the control of corruption in bureaucracies. It presents the intuitions behind the economic theories and discusses their practical value in anti-corruption policy design. The paper contrasts policies directed against civil servants found guilty of corruption with compliance regimes that target state institutions as a whole.