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Legal Corruption

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  • DANIEL KAUFMANN
  • PEDRO C. VICENTE

Abstract

We challenge the conventional definition of corruption as the abuse of public office for private gain, making a distinction between legal and illegal forms of corruption, and paying more attention to corporate patterns of corruption (which also affect public corruption). We undertake to identify general determinants of the pattern of legal and illegal corruption worldwide, and present a model where both corruption (modeled explicitly in the context of allocations) and the political equilibrium are endogenous. Three types of equilibrium outcomes are identified as a function of basic parameters, namely initial conditions (assets/productivity), equality, and fundamental political accountability. These equilibria are: i) an illegal corruption equilibrium, where the political elite does not face binding incentives; ii) a legal corruption equilibrium, where the political elite is obliged to incur on a cost to deceive the population; and iii) a no-corruption equilibrium, where the population cannot be deceived. An integral empirical test of the model is performed, using a broad range of variables and sources. Its core variables, namely regarding legal corruption (and other manifestations of corporate corruption) come from an original survey developed with the World Economic Forum (in the Executive Opinion Survey 2004 of the Global Competitiveness Report). The empirical results generally validate the model and explanations. Some salient implications emerge.
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Suggested Citation

  • Daniel Kaufmann & Pedro C. Vicente, 2011. "Legal Corruption," Economics and Politics, Wiley Blackwell, vol. 23(2), pages 195-219, July.
    • Handle: RePEc:bla:ecopol:v:23:y:2011:i:2:p:195-219
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    2. Polona Domadenik & Janez Prašnikar & Jan Svejnar, 2016. "Political Connectedness, Corporate Governance, and Firm Performance," Journal of Business Ethics, Springer, vol. 139(2), pages 411-428, December.
    3. Elise S. Brezis & Joël Cariolle, 2017. "Financial Sector Regulation and the Revolving Door in US Commercial Banks," Studies in Political Economy, in: Norman Schofield & Gonzalo Caballero (ed.), State, Institutions and Democracy, pages 53-76, Springer.
    4. Tina Søreide, 2008. "Beaten by Bribery: Why Not Blow the Whistle?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 407-428, September.
    5. Martin Gregor, 2011. "Corporate lobbying: A review of the recent literature," Working Papers IES 2011/32, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2011.
    6. Mihaly Fazekas & Istvan Janos Toth & Lawrence Peter King, 2014. "Anatomy of grand corruption: A composite corruption risk index based on objective data," CERS-IE WORKING PAPERS 1403, Institute of Economics, Centre for Economic and Regional Studies.
    7. Frédéric Boehm & Johann Graf Lambsdorff, 2009. "Corrupción y anticorrupción: una perspectiva neo-institucional," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 11(21), pages 45-72, July-Dece.
    8. Gebhard Kirchgässner, 2014. "On Self-Interest and Greed," CESifo Working Paper Series 4883, CESifo.
    9. Jellal, Mohamed & Bouzahzah, Mohamed, 2012. "Rentes et corruption au maroc théorie et evidence [Morocco rents and corruption theory and evidence]," MPRA Paper 38750, University Library of Munich, Germany.
    10. Faccio, Mara & Parsley, David C., 2009. "Sudden Deaths: Taking Stock of Geographic Ties," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(3), pages 683-718, June.
    11. Beckmann Klaus & Gerrits Carsten, 2009. "Armutsbekämpfung durch Reduktion von Korruption: eine Rolle für Unternehmen? / Fighting poverty by fighting corruption: A task for private enterprise?," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 60(1), pages 463-494, January.
    12. David A. Hastings, 2009. "From Human Development to Human Security: A Prototype Human Security Index," MPDD Working Paper Series WP/09/03, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    13. Parsley, David & Faccio, Mara, 2006. "Sudden Deaths: Taking Stock of Political Connections," CEPR Discussion Papers 5460, C.E.P.R. Discussion Papers.
    14. Anna D’Souza & Daniel Kaufmann, 2013. "Who bribes in public contracting and why: worldwide evidence from firms," Economics of Governance, Springer, vol. 14(4), pages 333-367, November.

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    JEL classification:

    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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