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Legal Corruption

43 Pages Posted: 11 Apr 2006  

Daniel Kaufmann

Natural Resource Governance Institute (NRGI); The Brookings Institution

Pedro C. Vicente

New University of Lisbon - Nova School of Business and Economics

Multiple version iconThere are 2 versions of this paper

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

Natural Resource Governance Institute (NRGI) ( email )

80 Broad Street
New York, NY 10004
United States

HOME PAGE: http://www.resourcegovernance.org

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)

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

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