J. Graf Lambsdorff/J. of Economic Behavior & Org. 48 (2002) 221–241
and because partners to such a deal end up with potentially damaging information abouteach other. For these reasons, corrupt agreements are more likely to employ middlemen orresult as a by-product of legal exchange and social structures.Two different forms of corruption should be distinguished,
(Husted, 1994; Scott, 1972). Market corruption is deﬁned as a competitivetypeofcorruptionwithahighdegreeoftransparency.Forcontractorsinacorruptexchange,in this case, the identity of the partner is irrelevant. Such market relationships can indeedoccur, particularly in the case of petty corruption, e.g. the issuance of driver’s licensesand permits for village market stalls or the acquisition of seats or freight space on railwaycars (Husted, 1994, p. 20). Also illustrative of a kind of market corruption is a multitudeof “coyotes”, who wait outside the department of motor vehicles in Mexico to expeditethe processing of a driver’s license, alongside with the payment of speed money (Husted,1994, p. 21). A similar case is reported from El Salvador, where “tramitadores” can behired to deal with cumbersome bureaucracies and pay “additional fees” when required.
Those demanding illegal services are confronted with a transparent price system and theopportunity to choose between suppliers of the adequate service.Parochial corruption is deﬁned as a transaction with few potential contractors, and thus,restricted competition. Due to limited entry and exit the identity of partners can matter.Crucial to the difference between these two types of corruption are transaction costs. Asmarket opportunities are investigated, typically, the total transaction costs arising as a resultof exchanging goods or services increase with the total number of potential contractorssought. This increase results from the efforts required to search for potential contractors,evaluatethequalityandadequacyofeachoftheirproductsaswellastheirindividualcapacityand willingness to comply with corrupt contracts. The number of contractors sought canbe assumed to be optimal once the marginal transaction costs of searching for anotherpartner are equal to the expected gains resulting from a potentially better deal with anothercompetitor. Taking this into account, it becomes evident that the higher the (marginal)transaction costs the fewer potential partners are sought.When we assume that in reality transaction costs of corruption are high, parochial cor-ruption becomes the dominant form of corruption. Examples of
mustthen be regarded the exception (Cartier-Bresson, 1997). They require that prosecuting au-thorities either abstain from investigation, reﬂecting public approval, or at least a broadlypermissive attitude towards corruption. Or the market has already developed institutionalmechanisms which help to lower transaction costs, as in the case of the “coyotes” and the“tramitadores”. This study argues that in most cases corrupt agreements are characterizedby a high degree of secrecy, little transparency, and limited participation.Various costs arise for those who offer and exchange corrupt services. For example,bureaucrats may expend resources so as to have sufﬁcient discretion for illegal activities.But such types of costs should rather be regarded production costs. Since they do notarise as a matter of exchange, they will not be further considered here. Also, this studywill not elaborate on aspects of cooperation between suppliers of corrupt services. Such a
See taz, die Tageszeitung, Berlin, Germany, 12 July 1999: “Die diskrete Kunst der Korruption. Warum‘tramitadores’ ewig leben”. Other cases of market corruption are reported by Rose-Ackerman (1999,pp. 15–16).