This paper analyzes corruption as a collusive act which requires the participation of two willing partners. An agent intending to engage in a corrupt act must search for a like-minded partner. When many people in the economy are corrupt, such a search is more likely to be fruitful. Thus when an agent engages in a search, he raises the net benefit of searching for other similar agents in the economy, creating an externality. This introduces a non-convexity in the model, which consequently has multiple equilibria. The economy can be in stable equilibrium with a high or low level of corruption.
Starting from the high-corruption equilibrium, a sufficient increase in vigilance triggers a negative cascade, leading the economy to a new equilibrium in which no agent finds it profitable to search for corrupt partners. The no-corruption equilibrium continues to be stable if vigilance is then relaxed. This suggests that the correct way to deal with corruption is to launch a ``big push'' with large amounts of resources. Once the level of corruption declines, these resources can be withdrawn.
Field of Research
140399 Econometrics not elsewhere classified
Socio Economic Objective
919999 Economic Framework not elsewhere classified