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Weber Source: The American Political Science Review, Vol. 80, No. 1 (Mar., 1986), pp. 107-119 Published by: American Political Science Association Stable URL: http://www.jstor.org/stable/1957086 Accessed: 13/08/2010 07:14
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Perspectives from political science and economics are drawn on to suggest an integratedtheory of governmentalcorruption. The theory is orientedtowardpolicy choices, and corruptionis viewed as a productof individualand structuralvariablesthat interactto produce both positive and negative consequences. Individual-levelconsiderationssuch as greed and the likelihood of detection and constraints, prosecutionsuggestone set of policiesfor reducingcorruption.Bureaucratic citizenparticipation,and the congruenceof legal structuresand social demandsoffer a competingset of concernsthat must be dealt with in analyzing corruptpractices. 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 relatedto corruptionfrom the perspectiveof welfare optimization.Applied to the analysis of corruption,the model integratesgeneralequilibriumtheory, deterrence theory, and structuralconditions.Finally, policy implicationsare considered.
Despite its frequent occurrence, governmental corruption has undergonesurprisinglylittle systematic investigation. The theoretical literaturehas adoptedeitherbroad classifications of administrative corruption defini1970)or categorical (Heidenheimer, tions of a wide range of corruptactivities (Petersand Welch, 1978), and has relied largely on descriptiveanalysisin examining the causes and effects of corrupt behavior.As Werner(1983,p. 152) notes, corruption "If the field of administrative is to become more theoreticaland less descriptive,it must develop a framework
and methodology that will permit comparative analysis."There remainsa need for an internally consistent theoretical model and an analyticaldefinitionwhich would lead to important policy considerations. This article examines corruptionfrom the combined perspectives of political scienceand economicsto develop a theoretical frameworkand methodology for policy analysis. Political science tends toward anecdotal accounts of individual cases of corruption that are useful in defining the concept, but provide little systematic analysis. Economics views
study suggeststhat corruptpracticeshave a "spillover" effect on the remainderof takesa numberof society. The "spillover" forms that lead to a lessened respect for the governmenton the part of the public. This effect is negative and is the putative consequenceof administrative corruption (Werner,1983, pp. 149-50). To reducethe confusionover the effects of corruptionupon the overall welfareof a society it is necessary to evaluate systematically the negative aspects of a corrupt activity in comparisonwith the in advantagesderivedby the participants the illegitimate exchange. With this approachit is possibleto interpret corruption as having eithera beneficialor detrimental net effect on society. BeneficialCorruption The concept of beneficialcorruptionis counter-intuitiveand thus requireselaboration. When the productionof desired goods and services in society is inhibited by structuralinefficiencies(bureaucratic, legal, and political), corruption could serve as a means of attainingthe desired outcome. The individualsparticipating in the illegitimate activity directly benefit from the transaction,while simultaneously raising social welfare by creating opportunitiesfor production that would otherwisebe restricted. An examplewill be useful at this point. Prostitution is nearly universal, yet the activity is illegal in most locations. The demandfor prostitutionis at least extensive enoughto raiselargesums of money, which in turn generateslucrative bribes for vice control officers. The causes of prostitution are not clearly understood but are related to a number of societal conditions concerning sexual activity among consenting adults. Given the sexual revolutionof the 1960s and 1970s, it may not be unreasonable suggestthat to the laws prohibitingthe performanceof sexual activities for money lag significantly behindthe actuallevel of tolerance
not imply that these activities should be consideredlegitimate,but ratherthat they provide a net increase in social welfare. What is implied is that there must be a seriousstructural flaw for any corruptact to lead to increasedwelfare.This is where the policy alternatives that will be describedlater come into play. DetrimentalCorruption The concept of detrimentalcorruption is easier to reconcilewith the bulk of the literature on the subject; however, our interpretation requires further elucidation. A particularcorruptactivity will be considereddetrimentalin this analysis if the net impact on society is negative. An example,concerning briberyof a mine the safety inspector, will help to illuminate our conceptionof detrimental corruption. A mine safety inspectoris requiredto certify that conditions in a particular mining operation are safe. The cost of actually maintaining a safe mining environmentis extensive for the mineral extractioncompany. The companymight cut costs on its safety equipmentby bribing a safety inspectorto incorrectly certify that the mine is safe when in fact it is dangerous.The companyand the corrupt officialwould profitfrom the transaction, but the risk of disaster for the miners would be enormous.Evenif the profitable transaction betweenthe companyand the official were to last many years before a disasteractuallydid occur, the loss of life resultingfroma minecave-inor explosion would exceed any monetary considerations. The situationwould be categorized as detrimentalin our analysis, regardless of the income transferamong the parties, because of the health risk caused by the corrupttransaction. The conceptionof beneficialand detrimental corruption described above is useful in exploringthe nature of corruption intuitively, but it is hardly systematic. To develop a systematic mech-
F PI w2
<
W
\
1~~~~W
0
Utility of
UB Key to Figure 1:
IncomeUB SegmentB
is a welfare frontier representing a possible distribution of real income (utility) between two income segments A and B. represents the same distribution at a UAUB higher level of societal income. is the Bergson-Samuelson social welWO fare function. W1 and W2 the higher numbered curves represent society's distributional judgment at higher levels of social welfare. are allocations which simultaneously P and P' satisfy Pareto optimum and social welfare criteria. imply possible allocations and disF and Q tributions which may result from beneficial corruption when society is initially at point P. Corruption will be detrimental if society can freely move to P' but is forced to move to F and Q or remain at P. UAUB
UAUBdepicts the welfare frontierand W the Bergson-Samuelson social welfare function.3 A line from the origin through point P representsthe public to private outputratiomost desirabledistributionally. The allocationwhich correspondsto P simultaneouslysatisfies Pareto optimum and welfare criteria.Any deviation from this point would be a distributional (allocationalif the welfarefrontiermoves only if it is desired outward)improvement by the society and accompaniedby a suf-
and privatesector producers.These practices correspondto the interpretationof corruption which is used in the current literature, and incorporate activities associated with the office-centered, market-centered, and public-centered types of violations reviewedearlier. Note that the illegitimatemeansin case 1 and case 2 resultin increasedwelfarein the Pareto sense only if the social change is on the welfarefrontierand stays along the lines of the social welfare function. This would correspondto the notion of beneficialcorruptionpresentedabove. In cases 3 and 4, illegitimatemeanswill lead to welfare losses, which we define as detrimentalcorruption. It is likely that both welfareeffectswill be presentin any corrupt practice. The determinationof whether a particularcorrupt transaction is beneficialor detrimentalwill be based upon the net impacton social welfare. Beneficial corruption is viewed as a "good"in this model because of its positive net impact on society's welfare. Corruptpracticesshift UAUBoutward as indicatedin cases 1 and 2, and restorea public to private output ratio at a higher welfarelevel shown by the tangencypoint P'. This point will be maintainedonly if society incursno additionalcosts related to corrupt practices. When such costs exist, society will restorethe equilibrium at a welfarelevel lower than P' but higher than initial point P, primarily because of the costs associated with the corrupt actionsand the spillovereffectson the rest of the economy. Consider, for example, the welfarelosses WL(SC) that may result becauseof the externaldiseconomies(SC) associated with beneficial corruption, such as the negative implicationsfollowing from the violations of the rules and norms of a society. Also, assume that society incurs additional losses WL(R1), due to resourceuse in corruptionprevention, and WL(R2),due to resourceuse in the corrupt sector to conceal corruption if and minimizepunishment apprehended.
of both individual characteristics and social influences, and its welfare impact will incorporateboth costs and benefits that may warrant different emphasis in terms of policy preferences.The determinantsof corruption,therefore,must be analyzed from the perspectivesof individuals and of society. The analytic frameworkproposed below employs the rationalindividualchoice model that has been widely used in the crime literature, and incorporatesthree additional structural variables to account for societal influences.
acp
8acP
acP
cP
(2)
Note that alterationof publicto private output ratios could lead to welfaregains, but at the same time change the distributive equity. As shown in Figure1, when the initiating forces in cases 1 and 2 restore a Pareto-efficient allocation at point F, income distributionimproves in favor of incomegroupA, but at the same time reduces social welfare to the level representedby W1. From an economist's perspective such changes in resource allocationare still beneficialas long as the new equilibrium F represents higher welfare than the initial allocation p.6 It shouldbe emphasizedthat the magnitude of welfare loss due to distributional effects will depend on society's notion of fairness. From a utilitarian distributive equity approach, corruption will be beneficial as long as it adds to welfare despite its adverseimpact on income diswill tribution.An egalitarian toleratesuch corruption if it improves equality of income, and so will a Rawlsian,as long as the utility of the least advantagedgroup in society is maximized. Under each of these equity assumptions, the rule for beneficialcorruptionis still valid: corruption is beneficialas long as welfare gains exceed welfarelosses; otherwiseit will be
detrimental.7
(4)
CP=
acP
d
acp
acp
acP
ab
aCP
ar
> 0-<O.
acP
a7
In equation(4) net social cost (S) is stated as the differencebetweensocial costs (SC)
is expected to alter the nature of individual optimization.For example, public officialswith relativelylow pay are likely to react to these variables, and when society raises the values of these variables, they are expected to temper and systematizetheirpracticesof corruption. The structural variables account for society's reaction to corruption under of varying arrangements organizational, The organilegal, and politicalstructures. zational variable 6 is expected to vary with CP in the same direction. Increased bureaucratic inefficiency inflicts additional time and resource costs on the private sector, and this, in turn, presses potential violators to economizeby initiating some form of corruption, such as bribery, to obtain expedited processing. Likewise, ir, indicating the degree of vagueness and impotence of property rights legislation, is expected to vary directly with CP. An example would be the differencein interpretationof property rights concerningthe ownership of groundwater and air resources. Public officials are more likely to participatein corrupt transactionsinvolving air pollution, which is subject to vague property rights, than in the case of contamination of groundwater,where ownershipexpectations are vociferouslyexercised. The third variable, 'y, is the degree of in politicalparticipation the productionof public goods. It indicatesthe probability of detectingviolations and varies inversely with CP. Low political participation, rationalignorance,or absenceof political pressuregroups is expectedto reducethe probability of detecting corruption. Nepotism and patronage as methods of awarding governmental jobs and contracts are practices that are difficult to maintain under intense public scrutiny. in Politicalparticipation electionsand the degreeof attentionthat society devotes to processeswill politicaland administrative vary for many reasons. Wars or other major upheavalstend to divert the atten-
results from a collaborative effort publicofficialsand privateparbetween impactof corruption ties. The economic relativeto crimeas definedin criminal and bad," the lawis in theformof "public is extentof its adversity likelyto depend of on the degreeof resistance subjected are variables likely society.Thedeterrent is to be less effective,sincecorruption a effort,and if cormuchmorecalculated
ruptionis uncovered,often the liabilityis joint, a factor which may significantly
of reducethe ex ante effectiveness the variables. deterrent Thus, the individualrationalchoice modelmay be usefulfor the analysisof corruptionthat is clearly detrimental. in results both whencorruption However, socialcostsand socialbenefits,the addito variables pertaining tion of structural level the resistance of societyis approprifunctionintroduced ate. In the corruption
above, both public officials and the privatepartiesinvolvedare expectedto reactto 6, vr,and y. Justas p andf are in variables theutilityfunctions deterrent
of violators, 5, vr,and y will be additional
Conclusions
This researchhas exploredthe topic of corruption from the combined perspectives of economicsand politicalscienceto develop an integratedapproach for the development of coherent public policy. To that end it was necessary to link the and concauses (individualor structural) sequences (positive or negative) of corruption, and examinethe situationin the context of social welfare effects. One of the theoretical improvements developed in this work is that corruption should not be thought of as a single phenomenon,but as a dichotomycharacterized by the net impact of the illegitimate activity on social welfare. If the net impact is positive, corruption is categorized as beneficial; if it is negative, corruptionis categorizedas detrimental. From this conception we develop a model in which policy choices related to corruption may be systematically evaluated from a welfare optimization per(8) spective. This model has implicationsfor dWL(S,R,f')> dWL(R3). public policy concerningcorruption,and Note that increasedstructuralefficiency suggeststhat in cases of beneficialcorrupwill also yield obvious externalbenefitsto strategymay warrant tion the appropriate If the noncorruptsociety WG(R3). these additional resources to alter inefficient benefitsare significant,then social structures. This is a significant > [dWL(S,R,f')+ dWG(R3)J dWL(R3). departurefrom the traditionalapproach corruption,which treats to administrative (9) as transactions thoughthey all illegitimate were the same as most other criminal These three options suggest that social welfare is maximized when corruption activity, and thus relies upon individual control policy is directedat the appropri- deterrentpolicies. The model accounts for variations in ate type of illegitimate activity. Since impactof corruptionas the distributional beneficial corruption is caused by in117
Notes
1. The Pareto optimum setting is an output performance criterion in the neoclassical interpretation of economic efficiency. In this analysis it is used as a reference. Other constructs of normative output performance can also be used. For more on Pareto optimality and other forms of outcome performance criteria, see De Allesi (1983). 2. In this analysis we assume a society where government involvement in the economy revolves around public goods production. Individuals are rational, and through a market-oriented collective decision-making mechanism they reveal their preferences. Again, these assumptions are made to reveal the essential features of corruption in a marketoriented society. It is important to emphasize that a similar conception of corruption can be also used in centralized or authoritarian societies. 3. Every point on the welfare frontier UAUB is Pareto efficient, and represents a possible distribution of real income (utility) between two income segments A and B. The Bergson-Samuelson social welfare function (W) is one of the most commonly used analytic devices, representing society's distributional judgment. In this study, W is used in its general form, W( ), to generate arguments on distributional consequences of corruption. Its point of tangency with the welfare frontier UAUB determines the most desirable allocation among all possible Pareto-efficient allocations. For more on this see Tresch (1981, pp. 17-42). 4. Note that the generalized Paretian efficiency criteria extend to all types of individual optimizations and include additional constraints relating to the system of property rights, including transaction and adjustment costs. See De Allesi (1983). 5. From the economist's perspective, this implies that additional costs must be incurred to introduce structural changes. Usually these costs are substan-
line. A Rawlsian
References
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Tevfik F. Nas is Associate Professorof Economics,Albert C. Price is Associate Professor of Political Science, and CharlesT. Weberis Associate Professorof Economics, Universityof Michigan-Flint, Flint, MI 48503.
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