NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Corruption

Abhijit Banerjee, Sendhil Mullainathan, Rema Hanna

NBER Working Paper No. 17968
Issued in April 2012
NBER Program(s):   POL

In this paper, we provide a new framework for analyzing corruption in public bureaucracies. The standard way to model corruption is as an example of moral hazard, which then leads to a focus on better monitoring and stricter penalties with the eradication of corruption as the final goal. We propose an alternative approach which emphasizes why corruption arises in the first place. Corruption is modeled as a consequence of the interaction between the underlying task being performed by bureaucrat, the bureaucrat's private incentives and what the principal can observe and control. This allows us to study not just corruption but also other distortions that arise simultaneously with corruption, such as red-tape and ultimately, the quality and efficiency of the public services provided, and how these outcomes vary depending on the specific features of this task. We then review the growing empirical literature on corruption through this perspective and provide guidance for future empirical research.

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Document Object Identifier (DOI): 10.3386/w17968

Published: “Corruption,” (with Rema Hanna and Sendhil Mullainathan), The Handbook of Organizational Economics. Ed. Robert Gibbons and John Roberts. Princeton University Press, 1109-­‐1147, 2012.

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