Limiting corruption and self-dealing is a precondition for making progress on the other challenges facing the world -- such as poverty, low levels of health and education, and environmental degradation. A beautifully designed policy that seems to have high net benefits may fail in the face of weak institutions. Those seeking to further economic development need to understand the institutional origins of corruption and to take them in to account in designing polices. This paper, prepared for a 2012 Copenhagen Consensus project on major problems facing the world, reviews recent policy-relevant research on corruption. It begins by summarizing the macro-data on the overall costs of corruption and then reviews research on the costs that corruption generates in particular sectors. The authors explain how corrupt incentives arise in a variety of contexts and outline the basic “corruption calculus”. With this background, the paper presents six linked types of reforms that can be part of an overall anti-corruption strategy. These include external monitoring and enforcement combined with the punishment of wrongdoers. Recognizing the limited impact of such strategies, the authors then concentrate on bottom-up reforms under which the victims of corruption help to limit its incidence. The paper then discusses internal controls, ranging from reforms in the civil service system to the redesign of programs and service delivery. The next section moves to the top of the government hierarchy to discuss the control of high-level corruption that distorts infrastructure projects, defense spending, privatization of public assets, and concession contracts. This discussion is followed by an effort to locate situations where the private market can substitute for the state to limit corrupt incentives. Finally, the paper lays out a set of new initiatives pursued at the international level. It concluded with some reflections on the state of the art of quantitative research on corruption and its reform
