The Microeconomics of Corruption. A Review of Thirty Years of Research

• Authors: José García-Montalvo, Juan-José Ganuza and Roberto Burguet.
• BSE Working Paper: 110381 | June 16
• Keywords: competition , mechanism design , Bureaucracy , corruption , game theory , bribes , deterrence
• JEL codes: C73, D72, D73, K42
• competition
• mechanism design
• Bureaucracy
• corruption
• game theory
• bribes
• deterrence

We review microeconomic research on corruption from the last thirty years. We start by analyzing the seminal models of corruption built on three-tier, delegation models. Then, go into more details of the context of corrupt deals, and discuss the main economic factors that affect corruption. We discuss incentives and compensation in bureaucracies, and the interplay of market and bureaucratic structure. Competition and contract design will also be reviewed in relation to procurement under corruptible agents. After reviewing the theoretical contributions, we turn to the empirical evidence. We begin discussing measurement issues, and then move to the analysis of the empirical evidence relative to the theoretical models discussed in previous sections. Finally, we cover several anti-corruption mechanisms proposed in the literature and discuss their relative merits as devices to control or eliminate illegal activities.