Part of the answer lies in the institutionalframework that determines the nature and extent of the opportunities outlinedabove. However, within a given institutional environment, economic theoryis poorly equipped to explain variation across individuals who face the samestructural incentives.

Each of these potentially corrupt situations raises the question of howbribery occurs.

Turn next to cases in which officials impose costs rather than benefits –for example, they seek to collect taxes or threaten citizens with arrest.

Third, the bureaucratic process itself may be a source of delay and othercosts. In that case incentives for corruption arise as applicants try to get to thehead of the queue or otherwise get better service.

Superiors cannot per-fectly monitor official behavior so lower level bureaucrats can collect bribesthat permit contracts to be given to poorly qualified firms and that allow assetsales to bidders who do not provide the state with the highest return.

First, a public benefit may be scarce, and officials may have discretion toassign it to applicants.

several generic situations

Low-level corruption occurs within a given institutional framework wherebasic laws and regulations are in place, and implementing officials seize uponopportunities to benefit personally. Here is where the principal/agent modelis most obviously applicable.

They affect the behavior ofthose who pay and those who receive payoffs. In this they are similar toprices or to contractual terms. They provide incentives that work against theaims of a public program or, at least, increase its cost to the beneficiarie

Rather one needs to combine institutionaleconomics with welfare economics to assess the impact of corruption ongovernment functioning in terms of both efficiency and fairness.

The institutional economics of corruption highlights the way bribery af-fects both the efficiency and the fairness of public sector actions.

The economic analysis of corruption models private individuals and firmsoutside government as active players.

They study both howpeople and firms respond to existing institutions as well as the political andeconomic incentives to change institutional forms

What then is the essence of that approach? Principals and agents operatewithin an institutional context. The insights of institutional economics areclosely related to the economic analysis of corruption. Institutional econo-mists and their political science fellow travelers stress the way the institu-tional context affects the behavior of individuals.

I do notsee the principal/agent approach as a restrictive one

approachpromises a richer and more nuanced set of research questions

For me, a more fruitful approach is to describe the range of phenomenaunder study and to assess the relative costs of each relative to the costs ofprevention.

Some of the most interesting issues in corruption research involve just suchdebates over the relative costs of different types of corruption in differentsettings.

Rothstein (2010) provides an interesting analysis of one set of conditionsfavorable to vicious spirals – programs that target a portion of the populationand require officials to make individualized judgments in allocating benefitsor imposing costs. This can, as Rothstein argues, undermine a norm of im-partiality and produce corruption.

True, such corruption couldmove up the hierarchy over time, but that is not a necessary result of suchspirals at one level

Rothstein (2010) stresses the problem of vicious spirals where the cor-ruption of some breeds the corruption of others until almost all are corrupt.This phenomenon is well-recognized in the economic analysis of corruptionand can arise both from limited law enforcement resources and from rein-forcing attitudes in which those who observe others’ corruption begin to viewsuch behavior as acceptable simply because it is common

he essential point in that corruption represents the viola-tion of an obligation or a duty in return for a private benefit.

Corruption occurs where private wealth and public power overlap.

chapter summarizes the institutional economics framework that con-tinues to yield important insights into the causes and consequences of cor-ruption

That book largely relied on journalism to supply the facts because there wereno statistical efforts to measure the harm caused by corruption.

Contemporary research on the institutional economics of corruption beganwith theoretical work that built on industrial organization, public finance, andprice theory to isolate the incentives for paying and receiving bribes and torecommend policy responses based on that theory.