A Policy-Oriented Theory of Corruption

Author(s): Tevfik F. Nas, Albert C. Price and Charles T. Weber

Source: The American Political Science Review , Mar., 1986, Vol. 80, No. 1 (Mar., 1986),
pp. 107-119
Published by: American Political Science Association

Stable URL: https://www.jstor.org/stable/1957086

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 A
POLICY-ORIENTED
THEORY OF
CORRUPTION
TEVFIK F. NAS
ALBERT C. PRICE
CHARLES T. WEBER
University of Michigan
Flint

Perspectives from political science and economics are

drawn on to suggest an integrated theory of governmental corruption. The theory is
oriented toward policy choices, and corruption is viewed as a product of individual and
structural variables that interact to produce both positive and negative consequences.
Individual-level considerations such as greed and the likelihood of detection and
prosecution suggest one set of policies for reducing corruption. Bureaucratic constraints,
citizen participation, and the congruence of legal structures and social demands offer a
competing set of concerns that must be dealt with in analyzing corrupt practices. We
show that corruption, as a process, influences the optimal level of social welfare.
Alternative conceptions are examined, and a model is developed to evaluate policy
choices related to corruption from the perspective of welfare optimization. Applied to
the analysis of corruption, the model integrates general equilibrium theory, deterrence
theory, and structural conditions. Finally, policy implications are considered.

Despite its and methodology that will permit com-

frequent occurrence, governmentalparative
cor- analysis." There remains a need
ruption has undergone surprisingly for an internally consistent theoretical
little
model and an analytical definition which
systematic investigation. The theoretical
literature has adopted either broad would
classi-lead to important policy con-
fications of administrative corruption siderations.
(Heidenheimer, 1970) or categorical defini- This article examines corruption from
tions of a wide range of corrupt activities the combined perspectives of political
(Peters and Welch, 1978), and has relied science and economics to develop a theo-
largely on descriptive analysis in examin- retical framework and methodology for
ing the causes and effects of corrupt policy analysis. Political science tends
behavior. As Werner (1983, p. 152) notes, toward anecdotal accounts of individual
"If the field of administrative corruption cases of corruption that are useful in
is to become more theoretical and less defining the concept, but provide little
descriptive, it must develop a framework systematic analysis. Economics views

AMERICAN POLITICAL SCIENCE REVIEW

VOL. 80 NO. 1 MARCH, 1986

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 American Political Science Review Vol. 80

corruption within a model of rational that provide direct or indirect benefit to

individual choice, with little concentration government officials. In a similar vein,
on the overall impact on society. While Peters and Welch (1978, p. 76) develop a
both disciplines provide insight into differ- four-part classification (official involve-
ing aspects of corruption, neither alone ment, actual favor granted, payoff to
produces a sufficiently satisfying explana- official, and the donor of the payoff) in a
tion of the pervasiveness of corruption in survey of state senators to rank particular
society. In this study, by incorporating acts as more corrupt or less corrupt.
both perspectives we develop a coherent These classifications have merit in the
theoretical framework from which the description of a specific corrupt event, yet
causes and societal consequences of cor- they lack the generality essential for an
ruption can be assessed. analytically useful definition of corrup-
The first section examines previous tion. To fill this gap, our analysis employs
interpretations of corruption, develops a a definition that incorporates alternative
definition appropriate to an interdisciplin- interpretations that have been developed
ary approach, and provides a dichotomous in the literature. We define a corrupt act as
conception of the effects of corruption asany illegitimate use of public power or
being either beneficial or detrimental. In authority for private benefit. Such a con-
the second section the effects of corruption cept subsumes all of the previous defini-
on social welfare are placed in the context tions and permits the analysis of a wide
of a general equilibrium model. This is range of corrupt practices. It should be
followed by a description of a formal clear that this definition excludes "pork
model that integrates general equilibriumbarrelling" and other forms of economical-
theory, deterrence theory, and structural ly inefficient but politically attractive
variables relevant to corruption. Public distributive policies, since they use legiti-
policy implications derived from this mate (legislative bargaining) means to
model are then explored. The major impli- influence governmental behavior (Wein-
cation of examining the problem in these gast, Shepsle, and Johnson, 1981).
terms is that society may need to alter sub- A second problem with the literature on
stantially its approach to dealing with corruption is that it is largely descriptive
corruption. and anecdotal. Sinclair's portrayal of the
meat packing industry and Gardiner's
Problems of Definition assessment of organized crime in an
American city are representative of the
One of the difficulties with this topic problem (Gardiner, 1970; Sinclair, 1908).
stems from the lack of a widely accepted While both works provide tremendous
definition of corruption. Heidenheimer insight into specific cases of corruption,
(1970, pp. 3-9) describes three types of they provide little coherent or systematic
corrupt behavior definitions: public office- theory concerning the topic.
centered, market-centered, and public What is lacking in most of the pub-
interest-centered. Public office-centered lished material is a systematic mechanism
definitions revolve around the violation of for linking the causes of corruption with
the public trust placed in the official. its consequences to generate public policy
Market-centered corruption refers to the alternatives. Regardless of the debate over
situation in which the official sees the posi- definition and outrage over specific exam-
tion as an authority to maximize personal ples of corrupt behavior, the question
gain by dispensing public benefits. A remains, "What should our society do
public interest-centered definition of cor-about corruption" To attempt an answer
ruption stresses the violation of the com- it is necessary first to examine the causes
mon interest in favor of special interests and consequences of corruption.

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 1986 Policy-Oriented Theory of Corruption

Causes of Corruption theory." The idea is that bureaucratic

inertia can cause people to attempt to cir-
The causes of corruption can be viewed cumvent official channels through bribery
from two distinct perspectives; one or other illegitimate means to achieve a
involves individual characteristics while desired result (Johnson, 1982, pp. 22-24).
the other concentrates on structural influ-Rose-Ackerman (1978, pp. 85-186)
ences. The individual-level explanation devotes nearly half of her book to exam
tends to view the corrupt act as the result ining how various bureaucratic arrange-
of greed or the inability to withstand ments influence the level of corruption.
temptations on the part of weak or The quality of political participation is
insufficiently ethical officials. Greed, oralso described as a deterrent of corrup-
desire for gain, is indeed a strong tion. Nonpartisan ballots and at-large
motivator of human behavior, as the municipal elections were aimed at
literature suggests. The Knapp Commis- improving the quality of participation
sion's study of police wrongdoing in New and breaking electoral support for ward
York City classified corrupt officers as politicians and political machines. In
either "grass eaters" or "meat eaters" recent years, reelection of corrupt officials
depending on the extent of their personalagain raises questions about the quality of
greed (Knapp Commission, 1973). Gar- democratic participation (Rundquist,
diner and Olson (1974, pp. 274-81) Strom, and Peters, 1977, pp. 954-63). If
discuss the inability to withstand tempta- officials are not closely scrutinized, it
tion and problems of individual value would seem more likely that they would
systems as two of the major explanations feel unconstrained in seeking their own
of corruption. Rogow and Lasswell (1963, benefit over that of the public.
pp. 45-54) classify corrupt machine A third structural view of corruption
bosses as having either "gain" or "game" involves problems caused by the lack of
orientations toward politics. While these congruence between the legal system and
individual explanations provide valuable social demand, and can be seen in the
insight into why some officials can cases of prostitution, gambling, and
become corrupt, they are not satisfyingdrugs. The law in the vast majority of the
explanations for the extent of corruption United States prohibits prostitution,
in our society, because they lack generalgambling, and certain recreational drugs,
applicability. yet at the same time there is a substantial
In order to provide a broader level of demand for such services and products. If
analysis we explore three categories of the legal system does not adequately
structural-level explanations: (1) bureau- respond to demands from the public or an
cratic or organizational (6), (2) quality of intensely interested subgroup, then the
citizen involvement (y), and (3) congru- likelihood of corruption increases.
ence of the legal system to social demands Officials are susceptible to being bribed to
(7r). The first two are derived from the overlook violations that are desired by a
existing literature while the third is segment of the public. In this situation,
described in this paper for the first time. the political system, or more correctly,
The organizational or bureaucratic the lack of congruence between social
approach to corruption has a number ofdemands and political outcomes, can be a
variations, but the essential theme is the cause of corruption.
inability to accomplish public purposes A somewhat different problem con-
due to impediments created by bureau- cerning the legal system occurs if property
cratic organization. One variant of this rights are unclear, as it is possible for peo-
theme has been labeled the "bottleneck ple to attempt to influence an official

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 American Political Science Review Vol. 80

illegitimately in a cause in which they feelstudy suggests that corrupt practices have
they are protecting their property. An a "spillover" effect on the remainder of
example of this type of situation is in the society. The "spillover" takes a number of
illegal pollution of a waterway by a com- forms that lead to a lessened respect for
pany. Ownership of a river may be the government on the part of the public.
unclear, while the company is clearly This effect is negative and is the putative
owned by the shareholders. The pressure consequence of administrative corruption
would be on the company to dispose of (Werner, 1983, pp. 149-50).
hazardous waste as inexpensively as To reduce the confusion over the effects
possible. An environmental official is of corruption upon the overall welfare of
required to safeguard the public's interesta society it is necessary to evaluate
systematically the negative aspects of a
in the river, yet the interest is not clearly
defined. It is easy to envision a situation corrupt activity in comparison with the
where an official does not seek aggressiveadvantages derived by the participants in
enforcement in exchange for private the illegitimate exchange. With this
benefit from the company. If property approach it is possible to interpret corrup-
rights concerning the river or other tion as having either a beneficial or detri-
natural resources were more clearly mental net effect on society.
defined it would be expected that the
owners of the property would vigorously Beneficial Corruption
protest its violation and require enforce-
The concept of beneficial corruption is
ment of the laws.
counter-intuitive and thus requires elab-
oration. When the production of desired
Consequences of Corruption
goods and services in society is inhibited
In addition to the causes of corruption, by structural inefficiencies (bureaucratic,
an integrated public policy approach legal, and political), corruption could
requires an examination of the conse- serve as a means of attaining the desired
quences of such behavior, so that scarce outcome. The individuals participating in
governmental resources can be efficiently the illegitimate activity directly benefit
utilized. The bulk of the corruption liter-from the transaction, while simultaneous-
ature has described the consequences as ly raising social welfare by creating
being routinely negative. A 1966 article, opportunities for production that would
"Corruption, The Shame of the States" otherwise be restricted.
(Wilson, 1966), is illustrative of the tradi- An example will be useful at this point.
tional self-righteous approach to the Prostitution is nearly universal, yet the
topic. There are a few notable exceptions activity is illegal in most locations. The
to this approach, such as Merton's (1972) demand for prostitution is at least exten-
analysis of the social service functions sive enough to raise large sums of money,
provided to otherwise ignored immigrants which in turn generates lucrative bribes
by apparently corrupt political machines. for vice control officers. The causes of
Similarly, Nye (1967) attempts to eval- prostitution are not clearly understood
uate the possible positive consequences of but are related to a number of societal
corruption for third world economic conditions concerning sexual activity
development. Both studies attempted to among consenting adults. Given the
evaluate the consequences of corruptionsexual revolution of the 1960s and 1970s,
rather than assuming the consequences it may not be unreasonable to suggest that
were negative. the laws prohibiting the performance of
Debate over the effects of corruption on sexual activities for money lag signifi-
society has lately been revived. A recent cantly behind the actual level of tolerance

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 1986 Policy-Oriented Theory of Corruption

in society. Assuming this to be the case, it not imply that these activities should be
is easy to see how a police officer could considered legitimate, but rather that they
overlook his or her duty to enforce an provide a net increase in social welfare.
outdated law because of a bribe or payoff. What is implied is that there must be a
The primary benefits in this example serious structural flaw for any corrupt act
are derived by the customer of the service, to lead to increased welfare. This is where
the prostitute, the procurer, and the the policy alternatives that will be
official who accepts the bribe. These described later come into play.
benefits can be grouped into two cate-
gories: (1) the direct gain of the partici- Detrimental Corruption
pants in the illegitimate transaction, and
(2) the reduction of the likelihood of addi- The concept of detrimental corruption
tional negative sanctions upon individuals is easier to reconcile with the bulk of the
performing a widely demanded service. literature on the subject; however, our
Possible externalities of corruption and interpretation requires further elucida-
equitable distribution of the benefits in tion. A particular corrupt activity will be
society must also be taken into account. considered detrimental in this analysis if
The negative externalities may produce the net impact on society is negative. An
long term disenchantment with the legal example, concerning the bribery of a mine
system and thereby harm society. Because safety inspector, will help to illuminate
these negative effects are distributed in a our conception of detrimental corruption.
diffuse way with little direct damage to A mine safety inspector is required to
any particular individual, it is difficult to certify that conditions in a particular
evaluate the extent of the harm. mining operation are safe. The cost of
The distribution of direct benefits in actually maintaining a safe mining
society is also an important determinant environment is extensive for the mineral
of the desirability of a corrupt transac- extraction company. The company might
tion. If the outcome of the transaction cut costs on its safety equipment by brib-
differentially benefits an income group ing a safety inspector to incorrectly certify
not requiring preferential treatment that the mine is safe when in fact it is
according to the distributive equity stand- dangerous. The company and the corrupt
ards of the society, then the social official would profit from the transaction,
desirability of the corruption would be but the risk of disaster for the miners
lowered. In the case of prostitution it is would be enormous. Even if the profitable
difficult to determine the distributional transaction between the company and the
impact with any specificity. One could official were to last many years before a
argue, however, that the distribution disaster actually did occur, the loss of life
resulting from corruption may be favor- resulting from a mine cave-in or explosion
able because of the dual benefit that a would exceed any monetary considera-
prostitute can derive by being able to earn tions. The situation would be categorized
income and avoid imprisonment. Using a as detrimental in our analysis, regardless
Rawlsian perspective, this distribution of the income transfer among the parties,
can be justified if it is assumed that the because of the health risk caused by the
prostitute is among the least advantaged corrupt transaction.
segment of society (Rawls, 1971). The dis- The conception of beneficial and detri-
tributional equity question must be exam- mental corruption described above is
ined individually for each situation in useful in exploring the nature of corrup-
which beneficial corruption exists. tion intuitively, but it is hardly sys-
The idea of beneficial corruption does tematic. To develop a systematic mech-

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 American Political Science Review Vol. 80

anism for analyzing the impact of corrup- Figure 1. Corruption and Social Welfare
tion on social welfare and to derive public in a General Equilibrium Model
policy alternatives, this conception needs
Utility of Income
to be articulated within a general equilib- Segment A
rium framework, since such alternatives
involve society's use of resources.

Corruption and Social Welfare F

UA PI
Consider a general equilibrium model
w2
that includes a social welfare function and
the Pareto optimal conditions for the < W 1~~~~W
economy as a whole. In addition to the 0 \ \ Utility of
efficiency conditions most commonly Income-
stated for social welfare maximization, it UB UB Segment B
will be assumed that society's production
Key to Figure 1:
is organized in accordance with Pareto
optimality; that property rights are suffi- UAUB is a welfare frontier representing a
possible distribution of real income
ciently defined to assure every member of (utility) between two income segments
society the desired output mix; and that A and B.
the interrelationship among production, UAUB represents the same distribution at a
consumption, and distribution is legiti- higher level of societal income.
mized within a legal structure synchro- WO is the Bergson-Samuelson social wel-
nized to the Pareto optimum setting.1 The fare function.

general feature of this model is that it W1 and W2 the higher numbered curves represent
society's distributional judgment at
extends the Pareto optimum and welfare higher levels of social welfare.
maximum conditions to the organiza- P and P' are allocations which simultaneously
tional, political, and legal structures of a satisfy Pareto optimum and social
society. The public sector is assumed to welfare criteria.
act in direct response to society's prefer- F and Q imply possible allocations and dis-
ences, and its involvement in the private tributions which may result from
beneficial corruption when society is
market is limited to the conventional
initially at point P. Corruption will be
allocation, stabilization, and distribution detrimental if society can freely move
functions that are largely exercised to to P' but is forced to move to F and Q
maintain the Pareto welfare maximum.2 or remain at P.
Under these conditions, any alteration
in the public to private output mix will be
assumed legitimate only if it is along the UAUB depicts the welfare frontier and W
lines of the Pareto welfare maximum and the Bergson-Samuelson social welfare
is authorized by the prevailing legal function.3 A line from the origin through
system. In other words, changing a posi- point P represents the public to private
tion on the Pareto welfare frontier will beoutput ratio most desirable distributional-
a legitimate rearrangement if it results ly. The allocation which corresponds to P
from a desired alteration in social prefer- simultaneously satisfies Pareto optimum
ences justifiable by the legal structure of and welfare criteria. Any deviation from
the society; otherwise it will be illegiti- this point would be a distributional
mate, which may dictate additional use of (allocational if the welfare frontier moves
societal resources for its internalization. outward) improvement only if it is desired
This is demonstrated in Figure 1, where by the society and accompanied by a suf-

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 1986 Policy-Oriented Theory of Corruption

ficient alteration in the organizational and and private sector producers. These prac-
legal structure. Thus, as shown in Figure tices correspond to the interpretation of
1, a move from P to P' would be an corruption which is used in the current
acceptable and legal one. Under the givenliterature, and incorporate activities
assumptions, any other position off theassociated with the office-centered,
frontier, say point Q, would be inefficient market-centered, and public-centered
and illegal, leading to welfare losses types of violations reviewed earlier.
shown as the difference between W1 and Note that the illegitimate means in case
W2 on the diagram. 1 and case 2 result in increased welfare in
To add realism to the model, let us the Pareto sense only if the social change
assume that society encounters obstaclesis on the welfare frontier and stays along
in adjusting its organizational and legal the lines of the social welfare function.
structures to the preferred changes in the This would correspond to the notion of
output mix.4 The public sector lags behind beneficial corruption presented above. In
the private sector in adapting to new pro-cases 3 and 4, illegitimate means will lead
duction technologies, and at the same to welfare losses, which we define as
time the legal structure fails to adjust detrimental corruption. It is likely that
quickly to the changing conventions, both welfare effects will be present in any
norms, and expectations of society.5 corrupt practice. The determination of
Given these changes, consider point P whether a particular corrupt transaction
in Figure 1 and the following cases: is beneficial or detrimental will be based
1. Society's preferences dictate an out- upon the net impact on social welfare.
put mix other than P, yet the legal struc- Beneficial corruption is viewed as a
ture does not authorize such alteration; "good" in this model because of its posi-
2. Society is at point P, and, although tive net impact on society's welfare.
the legal structure is permissive, there are Corrupt practices shift UAUB outward as
bureaucratic obstacles which may delay a indicated in cases 1 and 2, and restore a
desired move towards another point on public to private output ratio at a higher
either UAUB or U'AU; welfare level shown by the tangency point
3. Society is at point P, and, despite P'. This point will be maintained only if
inefficiencies in the organizational and society incurs no additional costs related
legal structures, there is no tendency for to corrupt practices. When such costs
society to look for another resting point exist, society will restore the equilibrium
on either frontier; and at a welfare level lower than P' but higher
4. Society can freely move from P to than initial point P, primarily because
any other point on either frontier without of the costs associated with the corrupt
being affected by organizational and legal actions and the spillover effects on the rest
inefficiencies. of the economy. Consider, for example,
In all four cases initiating forces will be the welfare losses WL(SC) that may result
present to move society to another resting because of the external diseconomies (SC)
point, either through legitimate or illegiti- associated with beneficial corruption,
mate means. The forces which use illegiti- such as the negative implications follow-
mate means will become the sources of ing from the violations of the rules and
corrupt practices CP. This means that norms of a society. Also, assume that
transformation of societal resources and society incurs additional losses WL(R1),
alterations in the public to private output due to resource use in corruption preven-
ratio will result from corrupt practices tion, and WL(R2), due to resource use in
only if they are caused by an unauthor- the corrupt sector to conceal corruption
ized collaborated effort between public and minimize punishment if apprehended.

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 American Political Science Review Vol. 80

When these costs are significant the of both individual characteristics and
welfare frontier moves inward, restoring social influences, and its welfare impact
a public to private output ratio at a lower will incorporate both costs and benefits
level of welfare. For corruption to be that may warrant different emphasis in
beneficial under these conditions the terms of policy preferences. The deter-
welfare gains from corruption (WG) mustminants of corruption, therefore, must be
exceed the welfare losses (WL). This analyzed from the perspectives of indi-
means viduals and of society. The analytic
framework proposed below employs the
aWG AWL rational individual choice model that has
acP been widely used in the crime literature,
and incorporates three additional struc-
or more specifically, tural variables to account for societal
OWG WL(SC) + WL(Rl) + aWL(R2) influences.

acp 8acP acP cP (2) Model for Policy Analysis

Note that alteration of public Consider the social loss minimization

to private
output ratios could lead to welfare function, gains,
but at the same time change the distribu-
tive equity. As shown in Figure WL 1, = WL(S,R,f',CP),
when (3)
the initiating forces in cases 1 and 2 which has the same properties as the
restore a Pareto-efficient allocation at Becker-Ehrlich model used in the crime
point F, income distribution improves in literature.8 S is the net social cost which
favor of income group A, but at the same results from corrupt practices; R is the
time reduces social welfare to the level direct cost of corruption; f' is the social
represented by W1. From an economist's loss per violator convicted; and CP is the
perspective such changes in resource number of corrupt practices.
allocation are still beneficial as long as the The equations of the model are:
new equilibrium F represents higher
welfare than the initial allocation p.6 S = SC(CP) - SB(CP) (4)
It should be emphasized that the magni- SC'>O SB'>O
tude of welfare loss due to distributional SC"> O SB"< O
effects will depend on society's notion of
R = R(p, CP), R = (R1, R2) (5)
fairness. From a utilitarian distributive
R' > 0
equity approach, corruption will be
beneficial as long as it adds to welfare f'=kf, k>0 (6)
despite its adverse impact on income dis-
tribution. An egalitarian will tolerate such CP = CP(pfYi/YL,8,r,y) (7)
corruption if it improves equality of acP acp acp
income, and so will a Rawlsian, as long as
the utility of the least advantaged group d < 8 0 f < 'd(Y/Y)> ?
in society is maximized. Under each of
these equity assumptions, the rule for
acP aCP acP
> O0, > 0-<O.
beneficial corruption is still valid: corrup- ab ar a7
tion is beneficial as long as welfare gains
exceed welfare losses; otherwise it will be
detrimental.7 In equation (4) net social co
In either case, corruption is a product as the difference between s

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 1986 Policy-Oriented Theory of Corruption

and social benefits (SB). Social costs result is expected to alter the nature of indi-
from the external diseconomies of corrup- vidual optimization. For example, public
tion; they include economic costs and officials with relatively low pay are likely
social damages imposed on third non- to react to these variables, and when
consenting parties, such as the negative society raises the values of these vari-
implications of violating the rules and ables, they are expected to temper and
norms of society. Social benefits include systematize their practices of corruption.
welfare gains which result from cases 1 or The structural variables account for
2, described earlier, and account for the society's reaction to corruption under
personal gains of the parties who are varying arrangements of organizational,
engaged in corrupt practices. Both SC andlegal, and political structures. The organi-
SB are related to the level of corrupt prac- zational variable 6 is expected to vary
tices (CP) and tend to increase as with CP in the same direction. Increased
CP increases. Since SC" > 0 and SB" < 0, bureaucratic inefficiency inflicts addi-
it is assumed that social costs and benefits tional time and resource costs on the
are subject to increasing and diminishing private sector, and this, in turn, presses
returns. potential violators to economize by initi-
In equation (5) the direct costs of cor- ating some form of corruption, such as
ruption (R), are expected to increase as a bribery, to obtain expedited processing.
result of increases in CP and in the prob- Likewise, ir, indicating the degree of
ability of apprehending and convicting vagueness and impotence of property
the violators (p). Additional resources rights legislation, is expected to vary
directly with CP. An example would be
(RD) will be used in discovering violations
and convicting violators, and at the same the difference in interpretation of prop-
time resources (R2) will be used by the erty rights concerning the ownership of
violators to conceal their corrupt prac- groundwater and air resources. Public
tices and to minimize punishment if they officials are more likely to participate in
are convicted. Equation (6) defines the corrupt transactions involving air pollu-
social cost of punishment (f'). The size of tion, which is subject to vague property
punishment (f), such as the length of rights, than in the case of contamination
imprisonment, is translated into its social of groundwater, where ownership expec-
cost equivalent f' by a coefficient k tations are vociferously exercised.
indicating the form of punishment The third variable, 'y, is the degree of
imposed on the violator. political participation in the production of
Equation (7) relates the level of corrup- public goods. It indicates the probability
tion to p, to f, to the proportion of illegiti- of detecting violations and varies inverse-
mate income Yi to the level of legitimate ly with CP. Low political participation,
income Y1, and to three structural vari- rational ignorance, or absence of political
ables: 6 indicating the size of bureaucracy; pressure groups is expected to reduce the
Xr the degree of ambiguity of the property probability of detecting corruption.
rights legislation; and -y the degree of Nepotism and patronage as methods of
political participation in the production of awarding governmental jobs and con-
public goods. tracts are practices that are difficult to
The deterrence variables, p and f, and maintain under intense public scrutiny.
the coefficient k are borrowed from Political participation in elections and the
Becker's crime model to explain some degree of attention that society devotes to
aspects of corruption that would be dealt political and administrative processes will
with in a normal criminal activity. As vary for many reasons. Wars or other
specified in the model, varying p, f, and kmajor upheavals tend to divert the atten-

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 American Political Science Review Vol. 80

tion of society, and the expansion of Policy Implications of the Model

economic activity that results increases
the opportunity to engage in corrupt acts. The model suggests three distinct policy
Variation in the business cycle itself approaches that a society can employ
would be expected to affect the political regarding corruption. Maintenance of the
participation variable as well. Many status quo is the first policy option, with
activities that might be condoned or no additional resources employed to
ignored during good times become the detect or punish violators. The second
focus of investigations when conditions approach stresses individual-level deter-
worsen and budgets become tighter.9 rent considerations as a means of reducing
Note that these variables correspond to corruption, with additional resources
the structural variables and initiating devoted to increasing the probability of
forces that determined the level of corrup- detection and punishment of parties
tion and the resulting changes in society's engaged in corrupt transactions. The third
welfare as described in Figure 1. The alternative concentrates on the alteration
policy implications that follow from the of the structural conditions relevant to
deterrent variables, however, are more corruption. Additional resources (*hich
restrictive than in the case of crime con- will be defined as R3) would be utilized to
trol.10 As emphasized earlier, corruption clarify property rights, make legislation
results from a collaborative effort more congruent with social demands,
between public officials and private par- reduce bureaucratic inefficiency, and
ties. The economic impact of corruption increase political participation. In order
relative to crime as defined in criminalto maximize social welfare it is necessary
law is in the form of "public bad," and theto tailor the public policy response to the
extent of its adversity is likely to depend type of corrupt activity in question.
on the degree of resistance of subjected Recall that corruption was dichoto-
society. The deterrent variables are likely mized as being either beneficial or detri-
to be less effective, since corruption is mental,
a according to its net impact on
much more calculated effort, and if cor- social welfare. The three public policy
ruption is uncovered, often the liability is options must now be evaluated to deter-
joint, a factor which may significantlymine which choice will maximize social
reduce the ex ante effectiveness of thewelfare for a given type of corruption.
deterrent variables. The first option, maintenance of the
Thus, the individual rational choice status quo, can be employed for either
model may be useful for the analysis of type of corruption if certain conditions
corruption that is clearly detrimental. are present. To justify choosing this
However, when corruption results in both option, additional costs required for any
social costs and social benefits, the addi- change in policy must exceed the benefits
tion of structural variables pertaining to derived from reducing corrupt practices.
the resistance level of society is appropri- This means that the costs of the corrupt
ate. In the corruption function introduced activity must be less for society than the
above, both public officials and the costs associated with any method of
private parties involved are expected to reducing the illegitimate practice.
react to 6, vr, and y. Just as p and f are Another condition that could justify the
deterrent variables in the utility functions status quo would be. the society's apparent
of violators, 5, vr, and y will be additional contentment with the current level of cor-
incentives or disincentives, significantly rupt practices, so that there was no incen-
determining the level and type of corrup- tive to seek another position. Society in
tion in a society. this case can simply ignore the problem.

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 1986 Policy-Oriented Theory of Corruption

This option represents an equilibrium efficiencies in the structures of society, the

position in which the marginal costs of appropriate policy response will be to
corruption are roughly equivalent to the concentrate additional resources on mak-
marginal social benefits attainable from ing improvements in social structures. If
corruption reduction. instead individual deterrent considera-
The second policy alternative involves tions are enlarged to reduce beneficial
increasing p and f. This policy option is corruption, then society will experience
desirable only for detrimental corruption, welfare losses due to increased social costs
and is justified by the same logic as the related to the additional R1, R2, and f'.
deterrent model in the standard crime
control literature. Since the net social Conclusions
impact of detrimental corruption is nega-
tive, additional resource allocation to This research has explored the topic of
improve deterrent considerations is corruption from the combined perspec-
appropriate until the point at which tives of economics and political science to
WL(S,R,f) is minimized." Notice that develop an integrated approach for the
increasing the deterrent considerations is development of coherent public policy.
inappropriate for beneficial corruption, To that end it was necessary to link the
because the net social impact of the causes (individual or structural) and con-
activity is positive to begin with, and anysequences (positive or negative) of cor-
additional RX and R2 would detract fromruption, and examine the situation in the
the marginal social welfare. context of social welfare effects.
The third policy option requires some One of the theoretical improvements
combination of the following measures: developed in this work is that corruption
improving bureaucratic effectiveness, should not be thought of as a single
legal changes clarifying property rights or phenomenon, but as a dichotomy charac-
increasing the congruence between socialterized by the net impact of the illegiti-
demands and political outcomes, and mate activity on social welfare. If the net
efforts aimed at increasing political par- impact is positive, corruption is cate-
ticipation. These structural alterations gorized as beneficial; if it is negative,
will involve resource utilization R3. To corruption is categorized as detrimental.
justify this option resource costs associ- From this conception we develop a
ated with corrupt practices (SC,R,f') must model in which policy choices related to
exceed R3. Symbolically, this means corruption may be systematically eval-
uated from a welfare optimization per-
dWL(S,R,f') > dWL(R3). (8) spective. This model has implications for
public policy concerning corruption, and
Note that increased structural efficiency suggests that in cases of beneficial corrup-
will also yield obvious external benefits to
tion the appropriate strategy may warrant
the noncorrupt society WG(R3). If these resources to alter inefficient
additional
benefits are significant, then
social structures. This is a significant
[dWL(S,R,f') + dWG(R3)J > dWL(R3). departure from the traditional approach
to administrative corruption, which treats
(9)
all illegitimate transactions as though they
These three options suggest that social were the same as most other criminal
welfare is maximized when corruption activity, and thus relies upon individual
control policy is directed at the appropri- deterrent policies.
ate type of illegitimate activity. Since The model accounts for variations in
beneficial corruption is caused by in- the distributional impact of corruption as

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 American Political Science Review Vol. 80

well. However, the choices of welfare tial because of the inefficiencies involved in collec-
optimization strategies must ultimately be tive decision making. Implementation of a cost-
effective measure may be delayed due to political
tempered by a society's notions of dis- considerations.
tributive justice and fairness. This 6. When welfare maximization is divided into
research has provided a systematic frame-separate efficiency and distributional conditions, it
work for evaluation of public policy can clearly be shown that F is Pareto optimal, and
choices, and a basis from which the dis- even though it is justifiable by society's welfare func-
tion, it is not a welfare maximum P'. In this context,
tributive questions can be approached. corruption which moves society from P to F is
Further research is required before any beneficial. Compensation schemes such as non-
definitive statements can be generated distortionary taxes or subsidies can be introduced to
concerning distributive equity and cor- move society to point P'. The transition toward
welfare maximum can also be eased by clarifying
ruption control policies. It is our hope and redefining property rights and by improving the
that this research will stimulate further political structure.
analysis that will answer some of the 7. The distributive consequences of egalitarian,
remaining questions. Rawlsian, and utilitarian formulations can be clari-
fied on a generalized welfare frontier which consists
of both upward- and downward-sloping sections.
Notes On a generalized UAUB diagram, then, an egalitarian
would select a point on a 450 line. A Rawlsian
1. The Pareto optimum setting is an output per- approach will favor distributional outcomes when a
formance criterion in the neoclassical interpretationminimax point is reached on the welfare frontier,
of economic efficiency. In this analysis it is used as and
a the utilitarian will seek the tangency point on
reference. Other constructs of normative output per- the downward-sloping portion of the welfare fron-
formance can also be used. For more on Pareto tier. In this study, we use a Pareto welfare frontier
optimality and other forms of outcome performance which has a downward slope, as shown in Figure 1,
criteria, see De Allesi (1983). with no intention of reasoning in favor of any of the
2. In this analysis we assume a society where three outcomes. Following the convention, we refer
government involvement in the economy revolves to the Pareto welfare frontier because of its theo-
around public goods production. Individuals areretical convenience in dichotomizing efficiency and
rational, and through a market-oriented collective distributional problems. For more on this see Graaff
(1975, pp. 59-70).
decision-making mechanism they reveal their prefer-
ences. Again, these assumptions are made to reveal 8. Without specifically referring to corruption,
Becker (1968) and Ehrlich (1973, 1975) stress two
the essential features of corruption in a market-
oriented society. It is important to emphasize that acost variables: one associated with the probability of
similar conception of corruption can be also used in apprehension and conviction p, and the other with
centralized or authoritarian societies. the extent of punishment f. By establishing a causal
3. Every point on the welfare frontier UAUB islink between the crime rate and each of the two
Pareto efficient, and represents a possible distribu- variables, Becker and Ehrlich argue in favor of the
tion of real income (utility) between two income deterrent method of preventing crime.
segments A and B. The Bergson-Samuelson social 9. Corruption is assumed to exist in both liberal
welfare function (W) is one of the most commonly and conservative administrations. What might be
expected to vary is the location of the corrupt trans-
used analytic devices, representing society's distribu-
tional judgment. In this study, W is used in itsaction. Liberal administrations tend to increase
general form, W( ), to generate arguments on dis- expenditures in the area of social programs, which
would provide increased accessibility to corruption
tributional consequences of corruption. Its point of
for traditional liberal constituencies such as the poor
tangency with the welfare frontier UAUB determines
the most desirable allocation among all possibleand labor. Conversely, conservative administrations
Pareto-efficient allocations. For more on this see tend to increase appropriations for business and
Tresch (1981, pp. 17-42). military subsidies, and corruption in these areas
4. Note that the generalized Paretian efficiency would be expected to favor traditional conservative
criteria extend to all types of individual optimiza- constituencies.
tions and include additional constraints relating to 10. There are several empirical investigations in
the system of property rights, including transaction the literature that suggest the possibility of reduced
and adjustment costs. See De Allesi (1983). participation in specific cases of crime as either the
5. From the economist's perspective, this implies probability of apprehension and convict on p or the
that additional costs must be incurred to introduce degree of punishment f increased. For a review of
structural changes. Usually these costs are substan- these studies see Tullock (1980), and Witte (1980).

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 1986 Policy-Oriented Theory of Corruption

For studies which challenge the deterrent method see eds., Theft of the City. Bloomington: Indiana
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Passell and Taylor (1977). Merton, Robert K. 1972. The Latent Functions of
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Bosses, Machines, and Progressive Reformers.
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Tevfik F. Nas is Associate Professor of Economics, Albert C. Price is Associate Pro-

fessor of Political Science, and Charles T. Weber is Associate Professor of Economics,
University of Michigan-Flint, Flint, MI 48503.

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