A SIMPLISTIC GENERAL EQUILIBRIUM THEORY OF CORRUPTION

Authors


  • This is an edited transcription of taped comments at the Pacific Rim Allied Economic Organizations 2nd Biennial Conference, Hong Kong, January 12, 1996, in a general session, “The Economics of Corruption.” Other panelists were Gordon Tullock, University of Arizona, who served as moderator; Serguey Braguinsky, Yokohama City University, Japan (formerly of the Soviet Union); and Francis T. Lui, Hong Kong University of Science and Technology. Western Economic Association International coordinated the conference.

Abstract

The author's simplistic view of corruption is that all politicians and government officials—like everyone else—are constrained self-maximizers. They therefore establish or maintain regulations and controls with the intent to facilitate corruption, which then becomes a source of income for them. Under private enterprise, where resources are transferable and movable, competition limits the ability to corrupt. However, in state enterprises, limiting corruption through competition is difficult. Corruption can help offset the inefficiencies of a communist or hierarchical system, as the economy makes a transition toward private property. But the danger is that corruption will become institutionalized and develop well-defined, transferable rights. Once that happens, the economy gets stuck there, as it has in India. Thus, in reforming a communist system—as that of China—into a private property system, gradualism will not do.

Ancillary