Legal Corruption

43 Pages Posted: 11 Apr 2006

See all articles by Daniel Kaufmann

Daniel Kaufmann

Results for Development; The University of the Philippines Diliman; The Brookings Institution

Pedro C. Vicente

Nova School of Business and Economics

Date Written: November 24, 2005

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.

Keywords: Corruption, Lobbying, Influence, Political Economy

JEL Classification: O57, P16

Suggested Citation

Kaufmann, Daniel and Vicente, Pedro C., Legal Corruption (November 24, 2005). Available at SSRN: https://ssrn.com/abstract=829844 or http://dx.doi.org/10.2139/ssrn.829844

Daniel Kaufmann

Results for Development ( email )

1875 Connecticut Avenue, NW, Suite 1210
Washington, DC 20009
United States

HOME PAGE: http://https://r4d.org/about/our-team/daniel-kaufmann/

The University of the Philippines Diliman ( email )

Manila
Philippines

The Brookings Institution ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States

HOME PAGE: http://www.brookings.edu/experts/kaufmannd

Pedro C. Vicente (Contact Author)

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

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