The Supply of and Demand for Corruption

Abstract

In this paper the economics of a simple course in principles is applied to the subject of corruption. It is shown that the demand for corruption depends negatively on the price of corruption, i.e., the amount paid to obtain a public service beyond its stated fee. Corruption also depends on the tastes and culture of the land, a permissive country being, ceteris paribus, more corrupt. Higher income, either aggregate or personal, would, in the analysis, increase the demand for corruption, leading to a higher price. A bigger population, for the same level of public institutions, would also increase the demand and the price of corruption. On the supply side, higher costs, whether legal or judiciary, would undercut the supply of corruption, raising the price but decreasing the amount of corruption. Nationalizations, and a bigger public involvement in the nation's economy, would increase the supply of corruption, decreasing its price at the same time. So far the underlying assumption was that of a perfect competition in corruption. The existence of a mafia, which means that corrupt services are now rendered in a monopoly, would increase the price of corruption, and restrict its equilibrium amount. It would also lead to price discrimination in all its forms. It may also lead to rent-seeking by a competing mafia. Finally it is stated that corruption regulated by a mafia would be more difficult to eradicate than corruption in a perfect competition, because the mafia's past, present and future profits do not depend on a single person but are the possession of a parallel organization that has specialized in corruption.