THREE ASPECTS OF CORRUPTION

Abstract

This paper examines corruption from three perspectives—market imperfections, illegality, and investment in socially unproductive human capital. It argues that corruption is an optimal response to market distortions and may improve allocative efficiency. The paper discusses possible market structures that induce illegal, corrupt activities and identifies some principles for deterring corruption. To acquire more corruption opportunities, an individual must invest in some form of human capital. The paper also addresses the implications of corruption for economic growth and reform.