Why is Corruption a Problem of the State?

Abstract

Economic theories of the last decades provide analytical framework within which we can explain institutional conditions for corrupt action. Specialists making economic policy recommendations to resolve this problem use several approaches, the most dominant of which are rent-seeking and agency theories. In this paper, I explain economic policy recommendations that stem out of both approaches. I argue that scholars suggesting these recommendations within these two frameworks do not understand each other because of different assumptions they make. More specifically, I show that two sets of policy recommendations presented here are based on the particular system of property rights assumed within each theory. In this example, I show why corruption is a problem of the state rather than the market.