Instability and the Incentives for Corruption

51 Pages Posted: 27 Apr 2009

See all articles by Filipe R. Campante

Filipe R. Campante

Harvard University - Harvard Kennedy School (HKS)

Davin Chor

Dartmouth College - Tuck School of Business

Quoc-Anh Do

Sciences Po - Department of Economics; Centre for Economic Policy Research (CEPR)

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Abstract

We investigate the relationship between corruption and political stability, from both theoretical and empirical perspectives. We propose a model of incumbent behavior that features the interplay of two effects: a horizon effect, whereby greater instability leads the incumbent to embezzle more during his short window of opportunity, and a demand effect, by which the private sector is more willing to bribe stable incumbents. The horizon effect dominates at low levels of stability, because firms are unwilling to pay high bribes and unstable incumbents have strong incentives to embezzle, whereas the demand effect gains salience in more stable regimes. Together, these two effects generate a non-monotonic, U-shaped relationship between total corruption and stability. On the empirical side, we find a robust U-shaped pattern between country indices of corruption perception and various measures of incumbent stability, including historically observed average tenures of chief executives and governing parties: regimes that are very stable or very unstable display higher levels of corruption when compared with those in an intermediate range of stability. These results suggest that minimizing corruption may require an electoral system that features some re-election incentives, but with an eventual term limit.

Suggested Citation

Campante, Filipe R. and Chor, Davin and Do, Quoc-Anh, Instability and the Incentives for Corruption. Economics & Politics, Vol. 21, Issue 1, pp. 42-92, March 2009, Available at SSRN: https://ssrn.com/abstract=1376049 or http://dx.doi.org/10.1111/j.1468-0343.2008.00335.x

Filipe R. Campante (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-384-7958 (Phone)

Davin Chor

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Quoc-Anh Do

Sciences Po - Department of Economics ( email )

28 rue des Saints-Pères
Paris, 75007
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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