The economics of corruption

This paper considers the relationship between market structure and the incidence of corrupt dealings in the government contracting process. Three cases are analyzed. We first deal with a situation in which government preferences are well-defined and many firms compete for the contract; we then contrast this case with one in which government preferences are ‘vague’ and finally eliminate the competitive assumption to consider the case of bilateral monopoly. It is then possible to consider the extent to which various criminal sanctions will deter corruption and the degree to which criminal incentives can be reduced by revising contracting procedures and reorganizing market structures.