Economic Models of Corruption

Abstract

Corruption is something of a conundrum to economists. Whilst clearly being economic in its nature and principle motivation, that of personal gain, it is also clearly determined by a range of institutional, psychological, cultural and social factors which challenge the narrow assumptions that economics uses to model economic behaviour. The idea of ‘unethical’ behaviour is difficult for economists to analyse given their assumption that all individuals and organisations simply pursue self interest opportunistically. Also, their tendency to maintain in practice that 1) government cannot be trusted and should be restricted from intervening in markets, whilst 2) until recently, in theory, assuming them to be neutral or even conscientious in their provision of essential services, caused obvious problems for judgements on corruption issues. The work of Krueger (1974) and Tullock (1989) brought corruption to the attention of the academic community, but the problem remains one primarily addressed by the ‘policy community’ rather than pure theorists. Although generally keen to promote neoliberal and free-market policies based on classical economics, the Bretton Woods Institutions (BWI) have also been interested in the further analysis of the specific economics of corruption, in line with their role as provider of finances to developing countries, but also because, in their lending capacity, they have been subject to some remarkable losses through corruption themselves.