On the Opportunity Cost of Corruption Evan Osborne Wright State University and Osaka University Institute of Social and Economic Research October, 2002 ABSTRACT The paper investigates the relation between corruption, prosperity and the scope of government. Corruption and government size are argued to be jointly endogenous, while corruption can be negatively related to prosperity not because corruption deters prosperity but because potential prosperity makes corruption too costly to ignore. Empirical findings support the argument that there is a positive relationship between the amount of government and the amount of corruption. They also provide some support for an open economy and competition in political markets as ways to generate endogenous corruption reduction. The endogenous nature of corruption over the development process is argued to be an important but neglected phenomenon. Cultural factors are found to be exaggerated as determinants of corruption.