Economics of corruption

Corruption, often viewed as misuse of public office for private gain, has received significant attention in recent years from both policymakers/practitioners and academic scholars. This entry on the economics of corruption focuses on a small set of selected issues related to corruption and discusses various contributions. We begin by explaining how corruption arises in the context of an economic agency relation: where one’s welfare depends on another person’s actions or decisions. It distinguishes between different forms of corruption and their impact on economic outcomes. Using this formulation, we provide a summary of the various approaches to corruption deterrence, affecting both the scope and incentive for intermediaries in the agency relation to be corrupt. The note concludes by drawing on the recent literature, suggesting that corruption deterrence needs to consider behavioural, cultural, and institutional variables in addition to standard incentive mechanisms involving rewards and penalties.