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Keywords:

  • corruption;
  • social structure;
  • repeated games

Abstract

This paper offers a theoretical explanation of the non-linear relationship between the social structure measured by the fractionalization of a society and its level of corruption. By using a standard repeated multi-stage-game of corruption, considering punishment strategies and information transmission inside sub-networks, we find the maximum level of corruption in highly fractionalized societies consisting of a large number of small groups. This is due to the effect of the relative size of sub-networks on the trade-off between the stabilizing effect of increasing the threat-point towards the official and the destabilizing effect of demanding greater internalization of the negative external effect of corruption within network members. Copyright © 2013 John Wiley & Sons, Ltd.