A SIMPLISTIC GENERAL EQUILIBRIUM THEORY OF CORRUPTION

The author's simplistic view of corruption is that all politicians and government officials-like everyone else-are constrained self-maximizers. They therefore establish or maintain regulations and controls with the intent to facilitate corruption, which then becomes a source of income for them. Under private enterprise, where resources are transferable and movable, competition limits the ability to corrupt. However, in state enterprises, limiting corruption through competition is difficult. Corruption can help offset the inefficiencies of a communist or hierarchical system, as the economy makes a transition toward private property. But the danger is that corruption will become institutionalized and develop well-defined, transferable rights. Once that happens, the economy gets stuck there, as it has in India. Thus, in reforming a communist system-as that of China-into a private property system, gradualism will not do. Copyright 1996 Western Economic Association International.