Persistence and Pervasiveness of Corruption: New Perspectives

Abstract

Among the questions which this paper addresses are, how does a culture of corruption perpetuate itself over time, what effects do different features of the economy have on the phenomenon of corruption, and why the culture of corruption might or might not alter over time?

A central feature of the present dynamic analysis is that rational individuals (citizens as well as bureaucrats) learn from their past experiences. The past economic environment thus affects current choices of individuals which, in turn, influence the future economic environment. As a result, if bureaucratic corruption has been more pervasive in the past, then different citizens are more likely to choose those behaviors (such as more extensive cheating) which induce a greater pervasiveness of corruption in the future. These inter-temporal behavioral externalities are formalized within an overlapping generations framework, and the resulting aggregate corruption and cheating is characterized and analyzed.

This positive analysis yields new perspectives as well as new results. I examine how the pervasiveness of corruption and cheating is altered by such features of the economy as the extent of government intervention, and the beliefs of the youngest generations. Among the results is that if youngest generations of citizens believe that corruption is more pervasive, then corruption actually becomes more pervasive.