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Combating Corruption: On the Interplay between Institutional Quality and Social Trust

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  • Christian Bjørnskov

Abstract

The aim of this paper is to explore under which conditions institutional quality leads to lower levels of corruption. A model of a simple economy in which firms choose both between bribing or not bribing bureaucrats to avoid costs and between entering the official or the unofficial economy shows that the effects of increasing institutional quality may be ambiguous because of perverse effects of institutions on the unofficial economy. Employing a recent index of corruption based on objective data, the paper shows that formal institutions are more effective in combating corruption in countries with high levels of social trust. The paper concludes by discussing the implications of the findings for welfare and politics.

Suggested Citation

  • Christian Bjørnskov, 2011. "Combating Corruption: On the Interplay between Institutional Quality and Social Trust," Journal of Law and Economics, University of Chicago Press, vol. 54(1), pages 135-159.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/652421
    DOI: 10.1086/652421
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    Cited by:

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    4. Öhler, Hannes & Nunnenkamp, Peter & Dreher, Axel, 2012. "Does conditionality work? A test for an innovative US aid scheme," European Economic Review, Elsevier, vol. 56(1), pages 138-153.
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    6. Momi Dahan & Michel Strawczynski, 2020. "Budget institutions and government effectiveness," Journal of Public Budgeting, Accounting & Financial Management, Emerald Group Publishing Limited, vol. 32(2), pages 217-246, April.
    7. Méon, Pierre-Guillaume & Sekkat, Khalid, 2015. "The formal and informal institutional framework of capital accumulation," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 754-771.
    8. Goeschl, Timo & Jarke, Johannes, 2014. "Trust, but verify? When trustworthiness is observable only through (costly) monitoring," WiSo-HH Working Paper Series 20, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    9. Banerjee, Ritwik, 2016. "Corruption, norm violation and decay in social capital," Journal of Public Economics, Elsevier, vol. 137(C), pages 14-27.
    10. Xie, Heng & Cui, Xieyuan & Cao, Nannan & Guo, Zhouqi & Zhang, Qianchuan, 2024. "Social trust and the cost of equity," Finance Research Letters, Elsevier, vol. 63(C).
    11. Gur, Nurullah & Bjørnskov, Christian, 2017. "Trust and delegation: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 45(3), pages 644-657.
    12. Aziz N. Berdiev & James W. Saunoris & Friedrich Schneider, 2018. "Give Me Liberty, or I Will Produce Underground: Effects of Economic Freedom on the Shadow Economy," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 537-562, October.
    13. Christian Bjørnskov & Andreas Freytag, 2016. "An offer you can’t refuse: murdering journalists as an enforcement mechanism of corrupt deals," Public Choice, Springer, vol. 167(3), pages 221-243, June.
    14. Zhu, Bo & Wang, Yansen, 2024. "Does social trust affect firms' ESG performance?," International Review of Financial Analysis, Elsevier, vol. 93(C).
    15. Ivanov, Denis, 2023. "Institutional reforms and social trust: Quasi-experimental evidence from the Caucasian states," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 829-859.
    16. Gao, Ning & Jiang, Wei & Jin, Jiaxu, 2024. "Unravelling investors’ diverging responses to U.S. firms' global ESG incidents," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    17. Chung, Kee Hoon & Shim, Dong Chul & Park, Hyun Hee, 2024. "Revisiting theory of social capital: Can the internet make a difference?," Technological Forecasting and Social Change, Elsevier, vol. 202(C).
    18. Pavlik, Jamie Bologna & Jahan, Israt & Young, Andrew T., 2023. "Do longer constitutions corrupt?," European Journal of Political Economy, Elsevier, vol. 77(C).
    19. Jorge Cerdeira & Diogo Lourenço, 2022. "Does Corruption Impact Firm Innovation? Evidence from Portugal," Economies, MDPI, vol. 10(7), pages 1-10, July.
    20. Nam Hoang Vu & Tram-Anh Nguyen & Tram Bao Hoang & Nguyen Viet Cuong, 2024. "Formal Firms with Bribery in a Dynamic Business Environment," Journal of Business Ethics, Springer, vol. 191(3), pages 571-589, May.

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