The Economist’s Approach to the Problem of Corruption PRANAB BARDHAN * University of California, Berkeley, CA, USA Summary. — This paper will first distinguish between the non-economist’s approach to corruption largely on the basis of public morals and norms and the economist’s approach in terms of incentives and organization. I then discuss why otherwise similar countries may end up with different equilib- rium levels of corruption, why such equilibria tend to persist, and why corruption in some countries seems to be more damaging to the economy than in others. I then try to derive some policy lessons. Ó 2005 Elsevier Ltd. All rights reserved. Key words — corruption, methodology, equilibria, costs Almost everyone is exercised about the per- vasive problem of corruption in much of the world, but while most people, including other social scientists, emphasize values and ethics in this context, economists usually take a differ- ent approach, emphasizing the need for appro- priate incentives and punishments instead. 1 Of course, different people also mean different things by corruption. Most of the time, econo- mists use the notion of corruption as the ‘‘use of public office for private gains,’’ and by and large in this paper, I am going to keep to that meaning of the term. Obviously, this is not the only kind of corruption; when you think about the recent corporate scandals in the Uni- ted States and Europe, they were often cases of abuse of private office for private gains, but the public sector was involved in the sense that it had been lax in the regulations that were sup- posed to restrain the activities of private actors. Even in the case of the use of public office for private gains, there are two general kinds of corruption: (i) bureaucratic corruption, which is what much of the literature is about in eco- nomics and (ii) political corruption. This dis- tinction is useful for some purposes but not for others, valid in some contexts but not in others. In communist countries (including in China or Vietnam), or one-party authoritarian regimes where there is not much of an effective boundary between the ruling party and the state, the distinction is almost completely blurred. Even in democratic countries where many top bureaucrats are political appointees, not career civil servants, corruption is some- times hierarchically organized, so that political and bureaucratic corruption are interlocked. Even in countries (like India) where career civil servants, recruited on the basis of service examinations, are technically independent of political parties, sometimes bureaucrats are beholden to the ruling politicians (because the latter can transfer the former to undesirable postings and locations) and even otherwise are voluntarily complicit in the latter’s corrupt deals. Particularly, in large government pro- curements and purchases (often involving vari- ous forms of collusion and bid-rigging), cases of corruption usually involve the top politi- cians, hand-in-glove with the bureaucrats. Yet there are cases where bureaucratic or administrative corruption is quite different from political corruption in important ways. Particularly in democratic countries where there is an active opposition, politicians face more competition at periodic intervals, whereas civil servants in charge of specialized agencies or administrative departments often face much less competition and public scrutiny. Of course, there are countries with a long history of perva- sive and equal-opportunity corrupt politicians of all parties and factions, so that at election time the electorate chooses politicians on other * Final revision accepted: March 9, 2005. World Development Vol. 34, No. 2, pp. 341–348, 2006 Ó 2005 Elsevier Ltd. All rights reserved Printed in Great Britain 0305-750X/$ - see front matter doi:10.1016/j.worlddev.2005.03.011 www.elsevier.com/locate/worlddev 341