Corruption and Reform

Susanto Basu and David D. Li

No 55, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Countries making the transition to a market economy often experience an increase in corruption along with an increase in growth. This observation is puzzling in the context of current models, which emphasize the destructive nature of corruption. We present a model of corruption and reform which shows that under some circumstances a particular gradualist reform strategy is optimal. This strategy consists of temporarily relaxing control of corruption in order to provide a windfall to existing bureaucrats, thereby gaining their support for a reform effort that will ultimately reduce the distortions stemming from bureaucratic power. Thus, a one-time surge of corruption can be a prelude to a permanently reduced level of corruption in the future, which provides the incentive for high current growth. We illustrate our point with examples from the recent Chinese reform.

Keywords: corruption; transition; reform; property rights (search for similar items in EconPapers)
JEL-codes: D72 O12 P P21 (search for similar items in EconPapers)
Pages: pages
Date: 1996-06-01
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Citations: View citations in EconPapers (4)

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