ABSTRACT
Corruption, defined here as the abuse of public office for private gain, is at the core of the study of governance and political economy. In her early analysis of the political economy of corruption, Rose-Ackerman (1978) observes that all theories of the state implicitly or explicitly draw a normative line between market and nonmarket mechanisms of allocating scarce resources. Legislative decisions are not supposed to be for sale to the highest bidder in a liberal democracy, for example, even though democracy coexists with markets for many goods. A generic research problem is to describe and explain the microfoundations of exactly how market forces undermine whatever normative line has been drawn. A practical policy problem is to design measures so that widespread corruption does not become institutionalized as its own “informal political system” (Scott 1972), with the attendant social, political, and economic costs.
