economic development by curbing corruption essay

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• Published: 20 July 2023

Corruption, anti-corruption, and economic development

• Miao Zhang 1 ,
• Houli Zhang 1 ,
• Li Zhang 1 ,
• Xu Peng 1 ,
• Jiaxuan Zhu 1 ,
• Duochenxi Liu 1 &
• Shibing You   ORCID: orcid.org/0000-0002-0102-4149 1  

Humanities and Social Sciences Communications volume  10 , Article number:  434 ( 2023 ) Cite this article

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• Politics and international relations

Corruption and anti-corruption efforts are intertwined with political and economic concerns. From an economic and political perspective, as the government strives to enhance its governance capabilities, it becomes crucial to consider the costs of anti-corruption supervision and the losses incurred from corruption. This evaluation is essential for formulating a scientifically sound anti-corruption strategy that maximizes government benefits. To address this issue, the paper presents a model that incorporates levels of supervision and associated costs. The findings reveal that in the case of homogeneous officials, the optimal level of supervisory input, which maximizes government benefit, is nearly zero when per capita income is low due to budgetary constraints on anti-corruption control. However, as per capita income reaches a certain threshold, the optimal level of supervisory input suddenly rises to its maximum and decreases as per capita income increases. Alternatively, if the government adopts a zero-tolerance approach towards corruption and provides adequate remuneration to its employees, ensuring that all competent authorities can resist corruption, then corruption can be eliminated. Moreover, when officials exhibit heterogeneity in terms of their honesty levels, certain conditions give rise to a middle per capita income range, resulting in an optimal level of supervisory input that leads to a phenomenon known as “partial corruption.” During this phase, the wages paid by the government to its employees promote honesty, preventing them from engaging in corruption. However, they are unable to curb the corrupt activities of more dishonest officials. To some extent, this model also explains the challenges associated with eradicating corruption in several middle-income countries.

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Introduction.

Corruption accompanies power, as the British politician Lord Acton remarked, “Power tends to corrupt, and absolute power corrupts absolutely.” Corruption, as a misuse of power, is pervasive in all societies and is widely regarded as a major barrier to social and economic development. This is particularly true for developing countries, where the implications of corruption are the most damaging (UN, 2003 ). Shleifer and Vishny ( 1993 ) were among the first academics to define corruption as “the sale of government officials of government property for personal gain.” Similarly, Svensson ( 2005 ) defines corruption as “abuse of public office for private gain.” Later, Banerjee et al. ( 2013 ) defined corruption as a “violation of rules by officials for personal gain.” This includes not just overt corruption (officials accepting bribes), but also more subtle forms of bureaucratic corruption, such as nepotism. Corruption not only undermines fair competition and public trust, but it can also lead to resources misallocation ultimately reducing overall societal welfare. Consequently, identifying and effectively combating corruption is vital for every country or government.

Economic study on corruption has generally centered on two aspects: its causes and repercussions (Nie, 2014 ). Existing research on the causes of corruption typically discusses the roles of political systems, economic development levels, openness to foreign investment, legal traditions, education levels, culture, and religion (Acemoglu and Thierry, 2000 ; James et al., 2005 ; Šumah Š, 2018 ). Some studies also look into problems such as professional ethics, traditional customs, and demographics (Dollar et al., 2001 ; Rivas, 2013 ; Lee and Guven, 2013 ). In analyzing the repercussions of corruption, two extreme viewpoints have evolved (Aidt, 2009 ): those of the ‘sanders’ who believe corruption impedes progress, and those of the ‘greasers’ who believe corruption can (in certain cases) promote development. Given the multiplicity of causes of corruption and the fact that understanding these reasons can improve anti-corruption policy, there is significantly more research studying corruption’s causes than its economic impacts. For many developing countries, analyzing the fundamental mechanisms relating corruption, anti-corruption initiatives, and economic growth could provide insights into situations where high corruption coexists with high growth. A considerable amount of empirical analysis has been conducted on the causes and impacts of corruption (Adit, 2009 ; Dong and Torgler, 2010 ; Belgibayeva and Plekhanov, 2019 ). However, the principal-agent model, viewing corruption as an “agent violating the interests or preferences of the principal to benefit a third party,” provides a novel theoretical perspective that more effectively reveals the behavioral motivations and internal mechanisms underlying corruption.

Building on this foundation, the logical starting point of this study is that officials are motivated to engage in corruption to gain additional personal benefits when they have sufficient discretionary power, when economic rent exceeds salary levels, and when corruption detection and punishment are minimal (Yin and Nie, 2020 ). The government, on the other hand, has a similar reason to pass anti-corruption legislation. Anti-corruption actions, however, are not free; the government must invest significant human, physical, and financial resources in corruption surveillance and crackdowns. The relationship between such investment and government benefit is complex and varies depending on economic progress and governmental systems. Much of the existing research considers surveillance levels and costs from an exogenous perspective, assuming that they are determined by external variables rather than government decisions. However, in reality, when selecting anti-corruption strategies, governments must frequently evaluate monitoring levels and costs endogenously, incorporating these factors into their decision-making process. As a result, finding the best anti-corruption policy is a complex and critical topic.

Therefore, this study introduces a theoretical model that endogenizes the level of surveillance and costs to better understand how to balance corruption losses and the costs of anti-corruption surveillance investments, resulting in the optimal anti-corruption strategy under varying economic and political conditions. This study offers a fresh perspective on the coexistence of high corruption and high growth in certain developing countries. Furthermore, in many developing countries, such as those in East Asia, top-down supervision and incentives, rather than periodic elections, are the dominant influencers on official behavior. As a result, this research enriches the study of official behavior, which is ideally only influenced by the level of supervision.

The paper is divided into six sections. Following the introduction, the “Literature review” section provides a brief survey of the research on corruption and economic growth. The basic model’s construction is detailed in the “The basic model” section. The “Optimal choice of government supervision investment under homogeneous officials” section presents and discusses the government’s optimal choice. The “Optimum choice of government supervision investment under heterogeneous officials” section extends the problem to include a variety of corrupt officials. Finally, the “Conclusion and discussion” section provides research discussions and conclusions.

Literature review

Corruption and anti-corruption are both political issue and economic issue. The predominant focus of the economics community on the study of corruption is its impact on economic growth. However, consensus on this particular subject has yet to be established, with three prevailing opinions often voiced in the literature.

The first viewpoint is the “Harmful Corruption Hypothesis”. A group of scholars argue that rent-seeking activities not only cause inefficiencies but also lead to enormous unproductive waste (Krueger, 1974 ; Bhagwati and Srinivasan, 1982 ). Furthermore, corruption encourages talented individuals to engage in rent-seeking activities, which reduces economic growth (Shleifer and Vishny, 1993 ; Murphy et al., 1993 ). Shleifer and Vishny ( 1994 ) discovered that when the goals of politicians and enterprises do not align with those of maximization of social welfare, result of bribery mechanism is by no means optimal. Wei ( 1997 , 2000 ) believes that corruption has a tax effect, which weakens foreign investment willingness. As for empirical research, Mauro ( 1995 ) analyzes relationship between corruption and economic growth using data from 58 countries. The result shows that corruption has a significant negative impact on investment and GDP growth. Mo ( 2001 ) examines transnational data from 1970 to 1985 and concludes that corruption directly causes a decrease in investment, a decline of human capital, and political instability, and therefore indirectly inhibits economic growth. Pellegrini and Gerlaph ( 2004 ) argue that corruption inhibits economic growth by affecting investment and trade policies. Some academics contend that corruption slows economic growth by affecting taxes (Blackburn et al., 2006 , Imam and Jacobs, 2014 , Ivanyna et al., 2016 ). After separating the indirect effects of corruption on economic growth, Swaleheen ( 2011 ) concludes that corruption has a direct negative impact on economic growth. Kunieda et al. ( 2014 ) argued that capital account liberalization would amplify the negative impact of corruption on economic growth. Gründler and Potrafke ( 2019 ) revisited the relationship between corruption and economic growth using the inverted Transparency International Perception of Corruption Index (CPI) from 2012 to 2018 across 175 countries/regions. Their study indicates that the impact of corruption on economic growth is most pronounced in autocratic countries and is transmitted to economic growth via a decline in FDI and an increase in inflation.

The second viewpoint is that “corruption leads to efficiencies”. In some countries, there are some ineffective and rigid regulations, and corruption can relieve or even circumvent those regulations that impede economic development, thereby enhancing market efficiency and economic development (Leff, 1964 ). The “queuing model” proposed by Lui ( 1985 ) describes a situation in which officials grant bribery enterprises priority when issuing business licenses, thereby accelerating approval process and improving market efficiency. The “auction model” proposed by Beck and Mayer ( 1986 ) is a concretization of the preceding model. They believe that companies that can afford to high bribes are the most likely to be the most productive. Therefore, the “auction” acquisition of operating rights will increase market efficiency. Acemoglu and Verdier ( 1998 \ 2000 ) discovers that if anti-corruption is expensive and resource allocation is significantly distorted, then the level of corruption that maximizes output or social welfare might be greater than zero. Dzhumashev ( 2014 ) believes that when government size exceeds the optimal value, corruption can increase market efficiency and stimulate economic growth. Egger and Winner ( 2005 ) discovered that corruption could stimulate direct foreign investment based on empirical research with data from 73 countries. Through enterprise-level data analysis in China, Wang and You ( 2012 ), found that corruption can enhance a firm’s revenues at a micro level. Jiang and Nie ( 2014 ) demonstrated empirically that regional corruption in China has a positive impact on the profitability of private enterprises but has no effect on the profitability of state-owned enterprises. Furthermore, natural experiments arising from exogenous changes in trade policies imply that corruption may aid private enterprises in evading government supervision, thus explaining the paradox of China’s high growth and high corruption.

The third viewpoint is that “corruption depends on its environment”. This viewpoint is a synthesis of the first two. It argues that both viewpoints have their reasons and environments for existence. Whether corruption is beneficial or not depends on the environment and system in which it lies. After restricting their sample to highly liberalized countries and controlling for some economic variables, Méndez and Sepúlveda ( 2006 ) found that the relationship between corruption and economic growth is not constant. Under the maximization of economic growth, the level of corruption is significantly greater than zero. When the level of corruption is low, it promotes economic growth; when the level of corruption is high, it inhibits economic growth. Aidt et al. ( 2008 ) found that corruption hampers economic growth when the government’s management system is relatively perfect, but has no effect when the government’s management system is poor. According to empirical research conducted by Meon and Weill ( 2010 ), the impediment of corruption to economic growth diminishes as system deficiencies increase. When system deficiencies are so severe that they result in extreme inefficiency, corruption can actually promote economic growth. Aidt ( 2009 ) reached a similar conclusion, namely that corruption only positively affects economic growth when the system is defective. Dong and Torgler ( 2010 ) discovered through empirical research on China’s data that corruption can impact economic growth in many ways, both positively and negatively. Its overall effect is the sum of all its individual effects. Zheng ( 2015 ) determined, using theoretical models, that under certain conditions, society may benefit from a certain level of corruption and that anti-corruption measures may reduce the efforts of competent officials more than those of lower ability. Alfada ( 2019 ) evaluated the threshold value at which corruption inhibits economic growth. And Petersen ( 2021 ) employs corruption scandals to explain the inverted-U relationship between democracy and corruption.

Regardless of one’s position on the advantages and disadvantages of corruption, its negative impact on social welfare cannot be denied in certain aspects, as evidenced by the preceding literature review. Extensive studies have been conducted on the consequences of corruption, and some scholars have attempted to investigate the causes and countermeasures of corruption using novel perspectives and methodologies. Due to the secretive nature of corruption, available data are frequently limited, making it difficult to draw conclusions about corruption’s underlying mechanisms. In recent years, some scholars have started employing laboratory experiments to analyze individual corruption behaviors. For instance, Banerjee ( 2016 ) employed laboratory corruption games to elucidate bribery behavior and disclose the impactful role of moral cost. This research also highlighted the crucial role of social norms against the backdrop of corrupt behavior. To explain the relationship between corruption and economic development, Yin and Nie ( 2020 ) developed a three-tier agent model involving the central government, local government, and enterprises. They proposed that companies’ adoption of non-compliant technology could spur economic growth but also lead to corruption issues. Banerjee et al. ( 2022 ), in their public goods laboratory experiment, discovered that the propensity for public officials to embezzle increased the likelihood of tax evasion among citizens, and that tax evasion in turn increased the likelihood of embezzlement. Introducing a policy to detect and penalize public officials for embezzling taxes significantly reduced tax evasion among citizens.

In conclusion, examining corruption from the perspective of anti-corruption measures seems to be a more fruitful research topic. Existing literature typically externalizes the cost of anti-corruption efforts and seeks to explore the specific pathways of corruption via its various direct and indirect impacts. However, among the numerous ways corruption impacts economic development, we cannot overlook the influence of anti-corruption efforts on economic growth. The construction of anti-corruption measures has never ceased despite the escalating phenomenon of corruption over the 30 years since China’s reform and opening up. China’s anti-corruption expenditures have reached an unignorable level, necessitating an evaluation of corruption issues from the perspective of the cost of anti-corruption supervision. In light of this, this paper proposes a supervisory model that internalizes anti-corruption efforts and examines, through comparative static analysis, how the government can choose the optimal supervisory level that maximizes social welfare under various circumstances.

The basic model

The government’s resources are limited during a country’s economic development, so policymakers should make rational and scientific decisions in preventing, regulating, and combating corruption to maximize government benefit. In order to concretize this process, this model takes anti-corruption supervision as a factor of decision-makers’ consideration and endogenously internalizes the probability that officials will be found engaging in corruption.

Consider a static economy made up of citizens, governments, and their employees. All citizens are risk-neutral rational individuals with a total of \(\lambda\) , their per capita income is \(y\) , and they pay taxes to the government at average tax rate \(t\) . The government is policymaker that seeks to maximize benefits. Government benefit is increased by gathering taxes and employing officials to implement infrastructure or public utilities projects. Obviously, the right to implement a project leaves space for official corruption, which can be detrimental to the government’s benefit. Therefore, a group of supervisors is hired to stop or prevent corruption. Thus, government employees are separated into two groups: officials and supervisors. The number of supervisors is \(n\) , and the number of officials is \(1 - n\) , for a grand total of 1. Per capita wage rate of government employees is \(w\) . To ensure that people are willing to become government employees, a minimum wage constraint should be imposed, i.e., the wage of government employees should not be less than per capita income, then \(w\) should be satisfied \(w \ge y\) . For the government, it is necessary to find an appropriate proportion of supervisors and a wage \(\left( {n,w} \right)\) for government employees satisfying the above constraints to maximize government benefit. Next, each object’s behavior will be analyzed.

Since this model focuses on the level of supervision, the number of citizens defined as \(\lambda \left( {\lambda > 0} \right)\) , per capita income \(y\left( {y > 0} \right)\) , and average tax rate \(t\left( {t > 0} \right)\) are exogenous variables. The amount of tax paid by all citizens, i.e., government’s fiscal revenue f , is

where \(\gamma = t\lambda\) .

Supervisors

The government hires supervisors to supervise the behavior of officials. Define that all supervisors are homogeneous and have two states: normal working state and abnormal working state(laziness). Assuming that the probability \(p\) found by a supervisor that an official is in an abnormal working state is a function of the number \(n_e\) of supervisors in a normal working state, that \(p\) should be an increasing function of \(n_e\) , so we may define as

That is to say, \(p\) is exactly the proportion of the number of supervisors in normal work among government employees.

Because of the information asymmetry between the government and supervisors, the government does not know if supervisors are in an abnormal working state. In order to ensure their normal work, the government provides supervisors with an incentive on the basic wage \(w\) , that is, the salaries of all officials found to have abnormal working behaviors will be confiscated and distributed equally to all supervisors as an additional incentive. Assuming that the additional benefit of laziness is zero, in addition to the normal wage \(w\) , for each supervisor, the probability that an official in an abnormal working state will be found increases when he works normally compared with laziness, and there is a potentially higher possibility \(p\) of obtaining additional benefit, therefore, the benefit of each supervisor’s choice of normal work will not be lower than that of idleness. Thus, under government’s incentive policy, every supervisor will not choose to be lazy, so there are

Then, probability \(p\) that officials in abnormal working state will be found is

The government employs officials to operate infrastructure and public utility projects. Officials are fully aware of the number \(n\) of inspectors employed by the government, and the probability that officials will be discovered engaging in abnormal work is \(p(n) = n\) . Due to officials’ participation in the implementation of specific projects, there is room for corruption. We use the concept of “corruption space” to quantify officials’ rights, which demonstrates that officials can maximize their rent-seeking benefits. Total corruption space for all officials is defined as \(b\) , while the average corruption space per official is \(b/\left( {1 - n} \right)\) . It shows that a corrupt official will receive additional benefits of \(b/\left( {1 - n} \right)\) without being discovered. At the same time, effort input in infrastructure and public utilities projects will reduce by \(b/\left( {1 - n} \right)\) .

There are two states for all officials: the normal working state and the corrupt state. In a normal working state, officials will receive a basic wage \(w\) ; in a corrupt state, there is \(p(n)\) probability that they will be found corrupt. Once found, all wages and corrupt income will be confiscated, so the expected return of an official in a corrupt position is \(\left[ {1 - p\left( n \right)} \right]\left[ {w + b/\left( {1 - n} \right)} \right]\) , and the expected return can be used to represent the officials’ utility, \(U = \max \left\{ {w,\left[ {1 - p\left( n \right)} \right]\left[ {w + b/\left( {1 - n} \right)} \right]} \right\}\) . Since \(p(n) = n\) , the formula of anticipated income can be converted to \(\left( {1 - n} \right)w + b\) .

So, if there is

where the official’s income in the normal working state is not less than the anticipated income in the corrupt working state, the official will choose the normal working state.

Conversely, if

where the official’s income in the normal working state is less than the anticipated income in the corrupt state, then the official will choose to corrupt rather than work.

The government’s objective is to maximize the government’s benefit function by choosing an appropriate proportion of supervisors and wages of government employees \(\left( {n,\,w} \right)\) . Define the government benefit function \(G\left( {n,\,w} \right)\) as follows,

where \(B\left( {n,w} \right)\) is the total corruption benefit accrued by all officials without being detected by supervisors, both \(\alpha\) and \(\beta\) are coefficients.

The government benefit function \(G(n,w)\) is as follows: The government’s budget is total income tax \(f\) , of which a portion is used to pay government employees’ wages and the rest is for infrastructure and public utilities projects. Since corruption of officials may result in loss of \(B\left( {n,w} \right)\) and proportion \(p(n)\) is recovered by supervisor, part of resources ultimately devoted to infrastructure and public utilities is \(f - w - (1 - p(n))B(n,w)\) , which defined \(\alpha (\alpha > 0)\) as government benefit generated by investment of unit infrastructure and public utilities. Consequently, the government benefit from this part is \(\alpha [f - w - (1 - p(n))B(n,w)]\) . In addition, the supervisor is only responsible for supervising the official, whereas the official contributes directly to the government benefit of the supervisor. At this level, it is evident that the larger the number of officials, the greater the government’s benefit. Assuming that, regardless of officials’ working status, their contribution to government benefit in the implementation of infrastructure and public utilities projects is \(\beta (\beta > 0)\) , the additional government benefit generated by all officials is \(\beta \left( {1 - n} \right)\) .

In light of the above model, government’s objective is to:

It shows that the goal of policymakers is to maximize the government benefit function \(G(n,w)\) within certain constraints.

Optimal choice of government supervision investment under homogeneous officials

The above-described basic model has one feature: all officials are homogeneous, and their corruption space is identical and \(b/\left( {1 - n} \right)\) . Here, we will explore the optimal choice of government under the basic model of homogeneous officials.

The government makes decisions with the goal of maximizing the government benefit function \(G(n,w)\) , which is accomplished by employing a certain number \(n\) of supervisors and setting a base wage \(w\) for each official. Individual officials, on the other hand, decide whether to engage in corruption with the goal of maximizing payoffs based on three factors: the level of wages offered by the government \(w\) , the probability \(p(p(n) = n)\) that an official in a non-normal work situation will be detected, and the exogenously given corruption space \(b\) . When the payoff \(w\) under normal work is comparable to the anticipated payoff \((1 - n)w + b\) under corrupt work, officials choose to work normally. Because government may lead to different behavior of officials when setting different wage levels, the total corruption benefit \(B\left( {n,w} \right)\) of officials will vary without being detected, thereby affecting the form of government benefit function. Therefore, it is necessary to analyze various situations to determine the optimal choice of government. The analysis is divided into three sections: first, government’s optimal choice when low wage is \(w < b/n\) ; second, government’s optimal choice when high wage is \(w \ge b/n\) ; third, government’s optimal choice \(\left( {n^ \ast ,w^ \ast } \right)\) when the first two situations are combined.

Prior to analysis, model parameters need to be constrained. Clearly, if the total corruption space B of all officials is large enough, it signifies an unlimited expansion of power, where no decision can prevent the occurrence of corruption; therefore, the total corruption space B should be controlled to a certain range. In addition, in order to reflect the informational and professional advantages of officials in the implementation of infrastructure or public utilities projects, the influence gap between unit officials and unit resources investment on government benefit should not be too large; otherwise, there would be no reason for the government to employ officials to carry out specific projects, so coefficient \(\beta /\alpha\) should be increased. In light of this, we apply the following assumptions to full text, unless otherwise specified:

Assumption 1 . The parameters \(b\) , \(\alpha\) and \(\beta\) satisfy the following condition

Optimal choice for low wage ( \(w < b/n\) )

When the wage \(w < b/n\) is low, rational officials will find that the expected income from corruption \(\left( {1 - n} \right)w + b\) exceeds that \(w\) of normal work. Under such conditions, every official would choose to engage in corrupt practices. Consequently, the subsequent discussion will be solely devoted to analyzing the optimal choices for the government to maximize the government benefit function \(G(n,w)\) .

If each official’s corruption behavior will have additional benefits \(b/\left( {1 - n} \right)\) that not discovered by supervisor, then the total corruption benefit \(B\left( {n,w} \right)\) of each official is as follows:

and the government benefit function \(G(n,w)\) is reduced to

Thus, we have the following proposition.

Proposition 1 . When wages \(w < b/n\) are lower, the optimal number of supervisors and their salaries are \(\left( {n_1^ \ast ,w_1^ \ast } \right) = \left( {0,y} \right)\) , the value of government benefit function is

The conclusion of Proposition 1 is evident in Fig. 1 . As shown in Fig. 1 , shaded area between straight line \(w = y\) , \(n = 0\) , \(n = 1\) and curve \(w = b/n\) is value \(n\) and \(w\) can be obtained. Since the objective function \(G(n,w)\) is a linear function about \(n\) and \(w\) , the indifference curve is a straight line. The closer it is to origin, greater is the objective function \(G(n,w)\) . When the indifference curve is closest to the origin, when \(n\) and \(w\) are zero and \(y\) respectively, the government benefit function reaches its maximal value.

When wages are low ( w ), the optimal choice is at the intersection of w  =  y and n  = 0.

If government does not provide sufficient wages, rational officials will engage in corruption at the risk of being caught. If the government also employs some supervisors, the contribution of illicit funds recovered by supervisors to government benefit cannot compensate for the loss of government benefit caused by wages paid to supervisors. In this case, the cost of combating corruption exceeds the societal loss induced by its acceptance. In order to maximize government benefit, a rational government will inevitably decide not to employ any supervisors, and to reduce the wages of government employees to the lowest level, that is, per capita income \(y\) .

Optimal choice for high wage ( \(w \ge b/n\) )

When wage ( \(w \ge b/n\) ) is higher, rational officials will discover that the benefits \(w\) of normal work will not be less than the anticipated benefits of corruption \(\left( {1 - n} \right)w + b\) , so all officials will choose to work normally. Similar to the previous scenario, the focus of this section will be on analyzing the government’s optimal choices to maximize the government benefit function G ( n , w ).

At this time, the total benefits of official corruption \(B\left( {n,w} \right)\) will be 0, and the government benefit function \(G(n,w)\) will be reduced to

Proposition 2 . When wage ( \(w \ge b/n\) ) is higher, the optimal number of supervisors and wages \(\left( {n_2^ \ast ,w_2^ \ast } \right)\) that the government should choose can be divided two situations:

i. If \(y < \sqrt {\beta b/\alpha }\) , then

where value of government benefit function is

ii. If \(y \ge \sqrt {\beta b/\alpha }\) , then

Graphically, if the government increases wages, the spectrum of values \(\left( {n,w} \right)\) in Fig. 1 will not fall below the curve \(w = b/n\) . As shown in Fig. 2 , shaded area between straight line \(w = y\) , \(n = 1\) and curve \(w = b/n\) is value \(n\) and \(w\) can be obtained. Currently, the objective function \(G(n,w)\) is still a linear function with respect to \(n\) and \(w\) , so the indifference curve is a straight line. Similarly, the closer to origin indifference curve represents, the greater value of objective function. Obviously, if the minimum wage constraint is small, i.e., \(y\) is small, then the optimal choice must be at the point where the indifference curve and \(w = b/n\) tangent; on the other hand, if the minimum wage constraint is large, optimal choice is at the point where \(w = y\) and \(w = b/n\) intersect, as shown in Fig. 3 .

If the minimum wage constraint is small, the optimal choice is at the point where w  =  b / n is tangent to G ( n , w ).

If the minimum wage constraint is large, optimal choice is at the point where \(w = y\) and \(w = b/n\) intersect.

If the government implements a policy to “cultivate honesty and integrity through high pay”, that is, to ensure that wages are sufficiently high to persuade rational officials to abandon the idea of corruption, then Proposition 2 describes the optimal course of action. When per capita income is very low, the government is not concerned about the impact of the minimum wage on government expenditure or government benefit. In order to ensure that payment is appropriate to “cultivate honesty and integrity”, the government will carefully consider the relationship between investment in supervisors and improvements in government benefits. It will then determine the best amount of investment and pay for supervisors. The equilibrium pay level will be more than the per capita income, and the equilibrium supervisor input will also be greater than zero. On the other hand, the minimum wage restriction has an effect on government decision-making when per capita income is high. Maintaining a large number of supervisors will be more expensive due to the high expense of paying employees. Therefore, in an ideal case, government will set the minimum per capita wage, and the number of inspectors will remain at the level necessary to “cultivate honesty and integrity” even if officials are paid per capita. As shown by Proposition 2, as per capita income increases, the minimum wage restriction also ensures a sufficiently high wage, so the optimal number of supervisors decreases as per capita income increases. This shows that as a society becomes wealthier, on the one hand, the risk of corruption increases, reduces possibility of official corruption, and the cost of anti-corruption measures rises, causing the number of supervisors to decrease.

Optimum choice of comprehensive consideration of wages

If the government only requires a minimum wage (i.e., wage should not be less than per capita income) and does not impose a high or low wage, then when choosing optimal combination of supervisors and wages \(\left( {n,w} \right)\) , the government will consider the first two situations comprehensively to maximize the government benefit function \(G(n,w)\) and get optimal choice \(\left( {n^ \ast ,w^ \ast } \right)\) . In this way, the corollaries for proposition 1 and 2 are as follows (see appendix for proof).

Corollary 1 . If the government only restricts its employees’ minimum wage, the optimal number of supervisors and wages \(\left( {n^ \ast ,w^ \ast } \right)\) that the government should choose can be divided into the two situations below.

i. If \(y < \beta /\alpha\) , then

ii. If \(y \ge \beta /\alpha\) , then

Corollary 1 indicates that the best option for government investment in supervisors is to invest in none if per capita income y is so low that it drops below a particular threshold. The government currently believes that the benefits of fighting corruption surpass the expenses, even if only a small amount of effort is made. All officials are employed by the government. The highest degree of governmental gain will still be realized despite the lack of oversight and corruption among all officials. Specifically, if an economic society is relatively poor and has a low per capita income \(y\) , the government’s budget \(\gamma y\) will be quite limited. To improve government benefit, the government can only improve the quality of investment in infrastructure and public utilities. Therefore, government must employ sufficient officials with relevant information and expertize to operate specific infrastructure and public utilities projects. The government’s budget constrains its anti-corruption efforts. Considering that officials, whether corrupt or not, will contribute as much to government benefit as they do to the professionalism of project implementation, and that in order to obtain such “professional” benefits from officials, the government abandoned corruption supervision when the budget was limited, in such cases corruption will not offset an official’s contribution to government benefit in a “professional” way, even if the official is corrupt.

In addition, another portion of Corollary 1 states that if per capita income y exceeds a certain threshold value, the optimal choice of government investment in supervisors is greater than zero, and its value decreases as per capita income y rises. Specifically, when a society reaches a certain level of development, the per capita income is relatively high and the government will have relatively abundant budget γy . Therefore, in pursuit of high government benefit, the government does not rely entirely on officials to enhance the quality of implementation of infrastructure and public utilities projects. The government will consider officials more. Negative impact of staff corruption on government benefit maintains a team of supervisors greater than zero. Considering that when per capita income is higher than \(y \ge \beta /\alpha\) , there is \(w^ \ast = b/n^ \ast\) , the government has determined a reasonable proportion of supervisors and wage rate so that the expected income of officials in corrupt situations will not be higher than normal wage income; therefore, no rational official will participate in corruption activities under these conditions. It is worth mentioning that as a society becomes more affluent, the per capita income level y continues to rise, and the minimum wage constraint increases accordingly. As a result, the risk of corruption among officials rises, and an increase in their normal wages inhibits corruption to some extent, so the government needs fewer supervisors to ensure that a rational official is not corrupt.

Figure 4 shows the relationship between the optimal number of government supervisors \(n^ \ast\) and per capita income \(y\) . As shown in Fig. 4 , the optimal number of supervisors remains at zero as per capita income increases from zero until per capita income exceeds a critical value of \(\beta /\alpha\) , which we refer to as the “ critical value of supervising input of income.”

As per capita income y increases from 0, the optimal number of supervisors n undergoes a process of initially remaining at 0 level, then reaching a peak at b / y (when per capita income y reaches the critical value of β / α ), and finally gradually decreasing to approach zero infinitely.

The number of optimal supervisors surged abruptly to \(b/y\) and peaked at the critical point of \(\alpha b/\beta\) . As per capita income increased, the number of optimal supervisors began to decrease gradually. When per capita income approached infinity, that is, when \(y \to \infty\) , the number of optimal supervisors was infinitely close to zero. Figure 4 is also in line with reality. In fact, often poorer countries frequently lack anti-corruption measures, and corruption levels are relatively high. On the contrary, the wealthier developed countries can maintain a low level of corruption while spending less on supervision. For developing countries like China, the per capita income is at a medium-level, so it is likely located close to \(\alpha b/\beta\) (the highest level of supervision).

In addition, according to the definition of \(\alpha\) and \(\beta\) , if the influence of unit officials on government benefit is greater because of their own information or professional advantages, the impact of unit resources input on government benefit is relatively small. Then, the critical value of supervision input \(N\) will be larger, and the government will rely more on officials, so it will wait until a higher per capita income level to combat corruption. On the contrary, if the influence of unit officials on government benefit is relatively small due to their own information or professional advantages, and the impact of unit resource investment on government benefit is relatively large, then the critical value of supervision input \(N\) will be relatively small. Due to low capacity of officials, the government may take anti-corruption actions in advance to reduce losses.

Because we assume that all officials are homogeneous and confront the same size of corruption space, in this section of discussion, all officials will be in the same state, that is, all corrupt acts or all normal work. In the next section, we will introduce heterogeneous officials into the model and expand it to some extent.

Optimum choice of government supervision investment under heterogeneous officials

In reality, it is unlikely that all officials share the same “corruption preferences” or are completely homogeneous. Therefore, this section will discuss the optimal choice of government investment in supervision when officials have heterogeneous “corruption preferences”.

Assuming that only officials with a ratio \(m\left( {m \in \left( {0,1} \right)} \right)\) maintain original assumption, we refer to these Group \(A\) officials. The remaining officials with a ratio \(1 - m\) are more honest than the former. The “corruption space” has decreased due to their own reasons. We refer to them as Group \(B\) officials. Defining a “corruption preference coefficient” \(\sigma \left( {\sigma \in \left( {0,1} \right)} \right)\) , which indicates officials’ inherent degree of corruption. We believe that Group \(B\) officials, due to their own integrity, will not fully use rights allocated to them to corrupt. Therefore, they impose restrictions on themselves to alter corruption space \(\sigma b/\left( {1 - n} \right)\) . If corruption occurs with this official, he will receive additional benefit \(\sigma b/\left( {1 - n} \right)\) without being discovered, and investment in infrastructure or public utilities projects will decrease \(\sigma b/\left( {1 - n} \right)\) . The smaller the “corruption preference coefficient” \(\sigma\) , the more honest officials, and vice versa, the larger the corrupt officials. The “Corruption preference coefficient” of Group A officials are obviously 1.

Similarly, all officials may be in two states: normal work and corrupt state. Behavioral analysis of Group \(A\) officials can be found in the above model. For Group \(B\) officials, under normal working conditions, the benefit that each official will receive is basic wage \(w\) . In a corrupt state, every official has the probability of \(p(n)\) being found to be corrupt. Once found, all wages and corrupt income will be confiscated.

Therefore, under corruption, the expected income of Group \(B\) officials is

Thus, the utility function of Group \(B\) officials can be written as

Substituting \(p(n) = n\) , the formula becomes \(\left( {1 - n} \right)w + \sigma b\) . So, if there is

where the benefit of Group B officials under normal work is not less than expected benefits under corrupt work, so Group B officials will choose normal work.

Conversely, if \(w < \sigma b/n\) , where the benefit of Group \(B\) officials under normal work is less than the expected benefit under corrupt work, so Group \(B\) officials will choose corrupt work over normal work.

Obviously, the minimum wage to ensure that Group officials are not corrupt varies based on the varying levels of honesty of Group \(A\) officials and Group \(B\) officials themselves. In order to prevent corruption, the more honest Group \(B\) officials require a lower wage \(\sigma b/n\) . The optimal choice for a government, as determined by homogeneity of officials, is either to tolerate the corruption of all officials or to have zero-tolerance for corruption, as determined by the conclusion of a previous analysis. If officials’ “corruption preference” is heterogeneous, will there be an optimal choice for the government to supervise input if some officials will choose to corrupt while others do not? Intuitively, this is possible because there is a wage range \(w \in \left[ {\sigma b/n,\,b/n} \right)\) . When the wage is in this range, corruption will happen to Group \(A\) officials, but not Group \(B\) officials. If the cost of guaranteeing the non-corruption of Group \(B\) officials is less than the cost of guaranteeing non-corruption of all officials, then optimal choice of government supervision must be that wages are \(w \in \left[ {\sigma b/n,\,b/n} \right)\) , where it will be a society with “partial corruption”. Next, we will confirm existence of “partial corruption” through analysis.

Similarly, when the government formulates different wage levels, it may lead to different official behavior, resulting in varying levels of corruption income \(B\left( {n,w} \right)\) of officials without detection, which will affect the form of government benefit function. Considering the inconsistent behavior of Group \(A\) officials and Group \(B\) officials, we will discuss it in three cases: the first is the optimal choice of supervision input when the wage is low, i.e., \(w < \sigma b/n\) . The second is optimal choice of supervisory input when the medium wage is \(\sigma b < w < b/n\) . The third is optimal choice of supervisory input when the wage is high, i.e., \(w \ge b/n\) .

Optimal choice for low wage ( \(w < \sigma b/n\) )

When lower the wage \(w < \sigma b/n\) , according to the previous analysis, both Group \(A\) and Group \(B\) officials will find that the expected benefits of corruption will be greater than those of their normal work, so all officials will choose to corrupt. Corruption of Group \(A\) officials will have additional benefits \(b/\left( {1 - n} \right)\) if it is not discovered by supervisor. Corruption of Group \(B\) officials will have additional benefits \(b/\left( {1 - n} \right)\) if it is not discovered by supervisor, then total corruption benefits of officials \(B\left( {n,w} \right)\) is

and government benefit function \(G(n,w)\) is reduced to

Proposition 3 . When the wage ( \(w < \sigma b/n\) ) is lower, the optimal number of supervisors and their salaries \(\left( {n_3^ \ast ,w_3^ \ast } \right)\) are \(\left( {n_3^ \ast ,w_3^ \ast } \right) = \left( {0,y} \right)\) , the value of government benefit function is

Similar to Proposition 1, the conclusion of Proposition 3 can be obtained by making a slight modification to Fig. 1 . As shown in Fig. 5 , the shaded area enclosed between the line \(w = y,n = 0,n = 1\) and the curve \(w = \sigma b/n\) are the values that can be obtained for \(n\) and \(w\) . The indifference curve remains a straight line. The closer it is to the origin, the larger the objective function \(G(n,w)\) becomes. Therefore, when the indifference curve is closest to the origin, the \(n\) and \(w\) are 0 and y , respectively, where the government benefit function reaches its maximum.

When the wage ( w  <  σb / n ) is low, the optimal number of supervisors and their salaries satisfy n  = 0 and w  =  y .

If the salary is insufficient, then both Group \(A\) and Group \(B\) officials will choose to engage in corruption at the risk of being discovered. If government continues to employ some supervisors, even though corruption losses caused by more honest Group \(B\) officials will be less than in the previous model, the contribution of corrupt funds recovered by supervisors to government benefit still cannot make up for wages paid to supervisors. The loss, or in this case, the cost of curbing corruption for the entire society is greater than that of tolerating it. When wages are restricted by an upper limit, a reasonable government will inevitably choose not to employ any supervisors and reduce wages of government employees to the lowest level, that is, per capita income \(y\) , so as to obtain the highest level of government benefit.

In addition, it is simple to find that the optimal value of the government benefit function is a decreasing function of both the proportion m of Group \(A\) officials and the corruption preference coefficient \(\sigma\) of Group \(B\) officials. This demonstrates that when proportion \(m\) of corrupt Group \(A\) officials m is smaller and proportion \(1 - m\) of honest Group \(B\) officials is larger, the value of optimal government benefit function is larger. At the same time, if the corruption preference coefficient \(\sigma\) of Group \(B\) officials is small, indicating that the level of honesty of Group \(B\) officials is higher, then the value of optimal government benefit function will be large. These conclusions are also in line with our intuitive understanding. The smaller \(m\) and \(\sigma\) , the more honest a society is, the greater government benefit will obviously be.

Optimal choice for medium wage ( \(\sigma b \le w < b/n\) )

When wages are in a medium range \(\sigma b \le w < b/n\) , rational Group \(A\) officials will find that the expected benefits of corruption \(\left( {1 - n} \right)w + b\) are greater than those w of normal work, while rational Group \(B\) officials will observe that the expected benefits of normal work will not be less than those of corruption \(\left( {1 - n} \right)w + \sigma b\) at this time, as all Group \(A\) officials will choose corruption work and all Group \(B\) officials will choose normal work. Currently, total revenue of corruption \(B\left( {n,w} \right)\) is as follows

and the government benefit function \(G\bf \left( {n,w} \right)\) is reduced to

Thus, we have the following proposition (proof omitted).

Proposition 4 . When wages are within the medium-level range \(\sigma b \le w < b/n\) , the optimal number of supervisors and their salaries \(\left( {n_4^ \ast ,w_4^ \ast } \right)\) depend on income per capital y .

i. If \(y < \sqrt {\sigma b\left( {\beta - \alpha bm} \right)/\alpha }\) , then

where the value of government benefit function is

ii. If \(y \ge \sqrt {\sigma b\left( {\beta - \alpha bm} \right)/\alpha }\) , then

As depicted in Fig. 6 , if the government sets wages at the mediate-level, the range \(\left( {n,w} \right)\) of values will be between curves \(w = b/n\) , \(w = \sigma b/n\) . Therefore, the value of the shadowed area surrounded by straight line \(w = y\) , \(n = 1\) and curves \(w = b/n\) , \(w = \sigma b/n\) can be obtained by \(n\) and \(w\) , At this time, the objective function \(G(n,w)\) is still a linear function about \(n\) and \(w\) , so the indifference curve is a straight line. Similarly, the closer to origin indifference curve represents, the greater value of objective function. Similar to previous results, if the minimum wage constraint is small, that is, \(y\) is small, then the optimal choice must be at the point where difference curve and \(w = \sigma b/n\) are tangent. If the minimum wage constraint is large, however, the optimal choice is the intersection of \(w = y\) and \(w = \sigma b/n\) .

If the minimum wage constraint is small, the optimal choice must be at the point where difference curve and w  <  σb / n are tangent. If the minimum wage constraint is large, the optimal choice is the intersection of w  =  y and w  <  σb / n .

The situation described in Proposition 4 is a form of “partial corruption”, in which only a part of officials (Group \(A\) officials) will be corrupted while the rest will not. If the government can only set wages within a certain range, which may lead to “partial corruption” due to certain constraints, then the government’s optimal choice is as outlined in Proposition 4. When per capita income is very low, the government is unconcerned about the impact of the minimum wage on government expenditure or government benefits. Government will thoroughly evaluate the relationship between investment in supervisors and improvement in government benefits, and determine an optimal investment of supervisors and wage level. Since it cannot fundamentally restrain corruption of Group \(A\) officials, the government will employ a high proportion of supervisors to ensure investigation rate of corruption after an incident, and will also pay higher wages than the per capita income. On the other hand, when per capita income is high, however, the minimum wage constraint has a certain impact on government’s decision-making. Because the cost of paying wages is too high, maintaining a higher number of supervisors will incur additional cost. Therefore, in the optimal case, the government will establish a minimum per capita wage. As the government function cannot prevent the corruption of Group \(A\) officials, it will maintain the number of supervisors at a level that only the average salary of Group \(B\) officials can guarantee to “cultivate honesty and integrity”.

When wages are higher \(w \ge b/n\) , both Group \(A\) and Group \(B\) officials will find that the benefits of normal work will not be less than expected benefits of corruption. Therefore, all officials will opt to work normally. At this time, the total revenue from official corruption \(B\) is 0, and the government benefit function \(G(n,w)\) is reduced to

Consequently, we are in the same situation as in section 2 of the previous part, so Proposition 2 is the conclusion.

It can be seen that when the government sets a high enough wage, regardless of how different officials are, they will not engage in corruption, so the heterogeneity of officials will not influence government’s decision-making.

Optimal choice with comprehensive consideration of salary when corruption preference is heterogeneous

If only minimum wage is required (i.e., wages should be no less than per capita income) and there are no other interval constraints, the government will consider the first three situations to maximize the government benefit function \(G(n,w)\) and obtain the optimal choice \(\left( {n^ \ast ,w^ \ast } \right)\) when determining the optimal combination of supervisors and wages \(\left( {n,w} \right)\) . It is noteworthy that the optimal choice of government lead to the emergence of “partial corruption” due to the heterogeneity of officials. We are concerned about whether it is possible for the government to consider all circumstances and choose the optimal wage to be set within an interval where “partial corruption” will occur if government’s wages are not constrained by interval. First, we argue that if per capita income is low, the optimal choice for government, similar to the case of homogeneous officials, is to maintain wages in per capita income without employing any supervisors. The following inferences are provided (see appendix for proof).

Corollary 2 . If only the minimum wage is constrained, then when \(y < \sqrt {\beta b/\alpha }\) , the value of the government benefit function is \(\left( {n^ \ast ,w^ \ast } \right) = \left( {0,y} \right)\) , where the value of government benefit function is

Corollary 2 demonstrates that if the per capita income \(y\) is below a certain value, the optimal choice for government investment in supervisors is to not invest in any supervisors. Similar to the previous part of Corollary 1, Corollary 2 states that when per capita income is low, the government’s budget and limitations cannot support the cost of anti-corruption. Even if society is relatively honest, that is, there are smaller \(m\) and smaller \(\sigma\) , the government will not raise wages to combat the corruption of the more honest Group \(B\) officials.

Obviously, we know from corollary 2 that if \(y < \sqrt {\beta b/\alpha }\) , the optimal choice of government does not occur to be “partial corruption”. Then when \(y \ge \sqrt {\beta b/\alpha }\) , is it possible for this situation to occur? The answer is yes; we provide lemma (see appendix for proof).

Lemma 1 . Denote a function of \(m\) :

where \(\delta = \beta /\alpha\) . There exist \(\sigma \in \left( {0,1} \right)\) and \(m \in \left( {0,1} \right)\) such that \(\sigma < g\left( m \right)\) .

In other words, set \(p = \left\{ {\left( {m,\sigma } \right)\left| {\sigma < g\left( m \right),m \in \left( {0,1} \right),\sigma \in \left( {0,1} \right)} \right.} \right\}\) satisfies \(P \ne \emptyset\) .

As a result, we stipulate that government’s optimal choice may lead to “partial corruption”. Assuming that Assumption 2 is true, we provide Proposition 5 (See Appendix for proof).

Assumption 2 . The ratio \(m\) of Group \(A\) officials and corruption preference coefficient \(\sigma\) of Group \(B\) officials satisfy the following constraints:

Proposition 5 . If only the minimum wage of its employees is constrained, then, if and only if Assumption 2 holds, there exists a per capita income range that causes “partial corruption” if the optimal supervising input level chosen by the government is optimal. The government weighs the number of supervisors and wages \(\left( {n^ \ast ,w^ \ast } \right)\) that maximize government benefit in all cases into three categories.

i. If \(y < \frac{{\delta - bm}}{{1 - m}}\) , then

at this time, the value of government benefit function is

ii. If \(\frac{{\delta - bm}}{{1 - m}} \le y < \frac{{\delta \left( {1 - \sigma } \right)}}{m} + \sigma b\) , then

at this time, value of government benefit function is

iii. If \(y \ge \frac{{\delta \left( {1 - \sigma } \right)}}{m} + \sigma b\) , then

In the case of Assumption 2 being satisfied, cases i and ii in Proposition 5 are analogous to those of Corollary 1; that is, when per capita income \(y\) is very low and even lower than a certain critical value, the optimal choice for investing in supervisors is zero. Now, all officials will attempt to corrupt, but when the per capita income \(y\) is high enough and even higher than some critical value, the government will invest more in supervision to prevent corruption. Notably, in case ii of Proposition 5, when per capita income \(y\) is at a mediate-level, the optimal choice for the government is to invest a certain number of supervisors to prevent Group B officials from engaging in corruption. In other words, the government believes that only the most honest officials will not invest in corruption supervising costs. Relative to government benefit, benefits are relatively small. At the same time, the cost of investing so heavily in supervisors that no government officials will attempt to corrupt them is greater than the increase in government benefit. In this way, “partial corruption” results from the government’s optimal choice.

Proposition 5 reveals the existence of “partial corruption”, but its existence is contingent on the truth of Assumption 2. When ratio \(m\) of Group \(A\) officials and corruption preference coefficient \(\sigma\) of Group \(B\) officials are within set \(P\) , it is conceivable for “partial corruption” to occur, noting definition of set \(P\) , that is, when \(\sigma < g\left( m \right)\) , there will be “partial corruption”. As far as we know, \(g\left( m \right)\) is the decreasing function of \(m\) , so when both σ and m are smaller, it is easier to satisfy \(\sigma < g\left( m \right)\) , and “partial corruption” is more likely to occur. Intuitively, the smaller the \(m\) , the fewer corrupt Group \(A\) officials and the greater the number of honest Group \(B\) officials. Government chooses appropriate supervising input so that Group \(B\) officials will not attempt to corrupt benefits of situation will be greater than the larger m , and the cost of supervising input has not changed. Therefore, it is more likely that “partial corruption” will occur. In addition, the smaller the σ is, the more honest Group \(B\) officials are. Government selects appropriate supervising input and only makes the cost of Group \(B\) officials not attempting corruption smaller than that of the larger \(\sigma\) , so “partial corruption” is also more likely to occur. To sum up, a smaller m means that stopping corruption of Group \(B\) officials will produce greater benefits, and a smaller σ means that stopping corruption of Group \(B\) officials will produce smaller costs, and the combination of the two makes the emergence of “partial corruption” possible. This also partially explains why it has always been difficult to eradicate corruption in some middle-income countries.

The result of Proposition 5 suggests a possible relationship between the optimal number of supervisors n * and per capita income y under heterogeneous officials. Figure 7 illustrates the relationship If Assumption 2. As shown in Fig. 7 , the critical value of supervising input for income \(N\) is \(N\left( m \right) = \frac{{\delta - bm}}{{1 - m}}\) .

The critical value of supervising input for income is N ( m ) = ( δ − bm )/(1 −  m ) in a period of “partial corruption”. Correspondingly, in the period of “comprehensive anti-corruption”, the critical value of comprehensive supervising of income can be denoted as L ( m , σ ) = δ (1 −  σ )/(1 −  m ) + σb .

Since \(N\left( m \right)\) is an increasing function as to \(m\) , therefore, when \(m\) is smaller, the critical value of supervising input is smaller, and the society will enter an anti-corruption period earlier as per capita income rises. Intuitively, the smaller \(m\) is, the more honest its officials, the greater the likelihood that the government will invest in proactive supervising. As the government knows that the cost of supervising honest officials is not excessively high, but because there are such officials, it will receive more government benefits.

Figure 7’s optimal supervising input exhibits two jumps compared to Fig. 4 . Obviously, the first jump in critical value of supervision input ushers in a period of “partial corruption”, whereas the second jump ushers in a period of “comprehensive anti-corruption”, so the government will invest fully in inspectors so that no officials will attempt corruption. We will turn this jump point as “ critical value of comprehensive supervising of income”, and denote as \(L\) , according to Proposition 5 and Fig. 7 , we have

Since \(L\left( {m,\sigma } \right)\) is a decreasing function as to \(m\) and \(\sigma\) , the larger \(m\) and \(\sigma\) are, the smaller \(L\left( {m,\sigma } \right)\) is, and the earlier the government will enter comprehensive anti-corruption period. Intuitively speaking, the larger \(m\) and \(\sigma\) indicates that Group \(A\) officials are more and Group \(B\) officials are less honest than Group \(A\) officials. Group \(B\) officials does not pay sufficient attention to Group \(A\) officials due to their small number and lack of difference from Group officials in terms of corruption. Therefore, the government will be more aware of anti-corruption’s flaws and will advance comprehensive anti-corruption. In addition, as shown in Fig. 5 , when per capita income is close to the “critical value of overall supervising of income” \(L\left( {m,\sigma } \right)\) , the optimal level of supervising input may be the same, but the economy and society before per capita income is \(L\left( {m,\sigma } \right)\) will produce “partial corruption”, whereas the economy and society after \(L\left( {m,\sigma } \right)\) will not. If \(L\left( {m,\sigma } \right)\) is regarded as demarcation point between middle-income countries and developed countries, then this model partially explains why poorer countries have more corruption than richer countries in terms of supervising investment at a lower level.

As shown in Fig. 7 , the optimal level of government supervision input causes per capita income range of “partial corruption” occur between the critical value of supervising input of income \(N\) and the critical value of overall supervising of income \(L\) . From the monotony of \(N\left( m \right)\) and \(L\left( {m,\sigma } \right)\) , it can be deduced that the range enlarges with a decrease of \(m\) and \(\sigma\) , and with the increase of \(m\) and \(\sigma\) . When \(m\) and \(\sigma\) reaches a certain value, the area ceases to exist and degenerates to the situation depicted in Fig. 4 , that is, “partial corruption” does not exist, as shown by Proposition 6 (see appendix for evidence).

Proposition 6 . If Assumption 2 is false and the government only restricts its employees’ minimum wage, then the optimal level of supervision input chosen by government will not result in “partial corruption” regardless of the per capita income. To maximize government benefit in all circumstances, the government weighs the number of supervisors and their wages \(\left( {n^ \ast ,w^ \ast } \right)\) . It can be divided into two cases:

i. If \(y < \frac{\delta }{{m + \left( {1 - m} \right)\sigma }}\) , then

ii. If \(y \ge \frac{\delta }{{m + \left( {1 - m} \right)\sigma }}\) , then

If Assumption 2 is invalid, then Proposition 6 gives relationship between the optimal level of supervising input level and per capita income. Its figure resembles Fig. 4 . Only difference is that the critical value of supervising input of income \(N\) is

Since \(N\left( {m,\sigma } \right)\) is a decreasing function of \(m\) and \(\sigma\) , the larger \(m\) and \(\sigma\) are, the smaller \(N\left( {m,\sigma } \right)\) is, and the earlier the government will enter a comprehensive anti-corruption period. Obviously, because \(m + \left( {1 - m} \right)\sigma < 1\) , the critical value of input from income supervising is larger than that of homogeneous officials. This is due to the fact that existence of Group \(B\) officials make the whole society more honest than homogeneous officials. Therefore, under the same level of per capita income, if comprehensive anti-corruption measures are taken. Obviously, higher benefits can be obtained in societies with greater corruption. In other words, the existence of more honest Group \(B\) officials reduce the government’s concern about corruption, resulting in the government taking supervision inputs later.

Conclusion and discussion

Corruption has always been a worldwide issue, particularly in developing countries. In light of the fact that people do not yet have a clear understanding of how to balance the cost of corruption and anti-corruption supervision input, this paper has conducted a certain amount of theoretical research in this area.

Our research indicates that when per capita income is low, the optimal level of surveillance investment is virtually zero. Specifically, in a poorer socio-economic context where per capita income is below the “surveillance investment threshold,” government budgets are severely limited and unable to cover the costs of rigorous anti-corruption measures. Even minor efforts against corruption yield societal benefits that transcend the costs of such initiatives. Hence, governments can only enhance the quality of infrastructure and public service investment to advance government benefits. The chosen strategy entails hiring enough officers with relevant information and professional skills to implement specific infrastructure and public service projects with nearly zero investment in surveillance personnel. This choice is driven by the fact that officials, whether corrupt or not, can provide the same amount of government benefit due to their professional expertize in project implementation.

Secondly, when per capita income grows to a certain level, the optimal level of surveillance investment suddenly maximizes and declines as per capita income increases but always maintains a level greater than zero. In other words, as a society develops to a certain level, per capita income rises above the “surveillance investment threshold,” allowing the government a more flexible fiscal budget. At this stage, the government’s pursuit of high government benefits does not rely solely on improving project implementation quality by officers. The government also considers the negative impact of official corruption on societal welfare, therefore maintaining a positive level of supervision, reaching a maximum when per capita income is at the “surveillance investment threshold.” Furthermore, when per capita income is relatively high, the government determines a reasonable proportion and wage rate for surveillance personnel so that officials’ expected benefits from corruption do not exceed their normal wage income. In such a scenario, no rational official would participate in corrupt activities.

Finally, when officials’ corruption levels are heterogeneous, the proportion of more honest officials is larger, and their degree of honesty is higher. There may exist a middle per capita income range where an optimal level of supervising input results in “partial corruption.” In this scenario, the government only needs to maintain supervision input at a level that prevents honest officials from engaging in corruption. This conclusion also partly explains why poorer countries have higher corruption levels compared to wealthier countries when supervising investment is at a lower level. Additionally, this paper sheds light on the persistent challenge of eradicating corruption in certain middle-income countries.

The findings of this research provide a new perspective for understanding and addressing the corruption problem. However, it is worth noting the limitations of our study. First, our model is based on idealized assumptions and does not fully consider other potential factors affecting corruption, such as cultural factors, political environment, legal system, etc. The omission of these factors may impose certain restrictions on the practical application of our model. Second, our model is theoretically driven but lacks sufficient empirical data for validation, which could lead to potential bias in our conclusions. Third, our study assumes that the government’s budget allocation is solely based on economic efficiency considerations without considering the realities of political trade-offs and societal pressures. These factors can play a crucial role in the actual decision-making process. Moreover, our study predominantly features a static model without fully considering the time factor. For instance, as socio-economic development progresses, public tolerance of corruption may change, affecting the optimal level of corruption and anti-corruption surveillance investment. Future research could build a dynamic model to examine the influence of temporal variations and multiple factors on corruption and anti-corruption surveillance investment. In addition, laboratory experiments involving corruption games provide a more intuitive and operational method to assess and understand corruption decision-making behavior, presenting another area for continued development and refinement in future studies.

Data availability

Data sharing is not applicable to this article as no datasets were generated or analyzed during the current study.

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Public Sector Strategies in Curbing Corruption: A Review of the Literature

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• Federico Ceschel   ORCID: orcid.org/0000-0002-6639-4490 1 ,
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Corruption is widespread and preventive strategies to reduce corruption need to be adapted within the local context. Considering the United Nations (UN) Convention against corruption as our starting point, the paper presents a literature review based on 118 articles on corruption prevention initiatives in the public sector. The analysis indicates a substantial alignment between the guidelines deriving from the UN Convention, except for a lack of work on the risk-based approach to corruption prevention. Further, the review indicates problems with research designs. Based on the insights generated from the analysis, we develop an agenda for future research.

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Introduction

Corruption is widely recognized as a social plague that affects most countries worldwide. The so-called ‘syndromes of corruption’, such as elite cartels, clans and oligarchs described by Johnston ( 2005 ), locate corruption scenarios in different contexts. Certainly, both the public sector (Anechiarico and Jacobs, 1996 ; Auriol & Blanc, 2009 ) and the private sector (Argandoña, 2003 ; Castro et al., 2020 ; Lange, 2008 ) suffer from corruption. A significant portion of the specialized literature, focusing on the public sector during the end of the 1990s, highlights the harmful effects of corruption. There is evidence that corruption reduces investment (Mauro, 1995 ) and foreign direct investment (Wei & Wu, 2001 ), damages productivity and economic growth as a whole (Hall & Jones, 1999 ), diminishes the quality of procurement services (Rose-Ackerman, 1997 ), exacerbates income inequality and poverty (Gupta et al., 2002 ) and hampers efficient and effective allocation of resources of public expenditure (Tanzi & Davoodi, 1997 ).

Against this background, a growing interest emerged at the beginning of the 2000s in combating corruption not only through counter policies aimed at punishing corruption but also with prevention policies aimed at limiting the occurrence of potential effects. A significant milestone that marked a significant change in the anti-corruption strategy was sparked by the United Nations Convention Against Corruption (UNCAC) that was opened for signature in Merida in 2003, adopted by the UN General Assembly on 31 October 2003 (resolution 58/4), and entered into force on 14 December 2005 (in accordance with article 68(1)). According to the UN, this was “the only legally binding universal anti-corruption instrument” that affirmed the preventive approach to the corruption phenomenon. The Convention has become a milestone for the public sector in promoting and strengthening measures “to prevent the most prevalent form of corruption” (United Nations Office on Drugs and Crime, 2003 , p. iii). Starting from the premise that “a comprehensive and multidisciplinary approach is necessary to effectively prevent and combat corruption”, chapter no. 2 is devoted to corruption prevention measures. It thus inextricably links the concept of prevention with policies and practices of intervention both at the national level, calling for “appropriate legislative and administrative measures”, and at the level of the individual organization calling for (among other things) maintaining and strengthening “systems for the recruitment, hiring, retention, promotion, and retirement of public employees”, as well as implementing “codes or standards of conduct”. This is particularly relevant for public procurement and public financial management, with their emphasis on implementing reporting systems, adopting accounting and auditing standards, implementing system of risk management and internal control.

With this integrated and multidisciplinary approach to corruption prevention, inspired by the work within the OECD ( 2000 ), public and private organizations might develop and implement more accurate, realistic, and effective preventive actions as these measures are linked to the assessment of the corruption causes to which organizations are potentially exposed.

Furthermore, within the framework of the general principles defined by the UNCAC, each State must adopt the mentioned basic rules in its context according to the fundamental principles of its legal, organizational, and cultural system. Certain scholars (Hopkin, 2002 ; Meagher, 2004 ) and governmental organizations (McCusker, 2006 ; Disch et al., 2009 ; OECD, 2008 ) emphasize design and implementation at the national level and thereby contribute to this framework of renewed interest in prevention policies.

However, little is known about governments' implementation of corruption prevention strategies inspired by these renewed international guidelines. While corruption is increasingly seen as a risk to public organizations, the prevention activities undertaken by such organizations or the results of these activities for the public institutions themselves are poorly understood (Miller et al., 2008 ; Power, 2007 ).

Considering the above, this paper presents a literature review based on 118 articles on corruption prevention initiatives in the public sector published between 2001 and 2020. Given the aforementioned need to adopt anti-corruption measures in their reference context, we defined clear selection criteria for the articles included in the review: We focus on upper-middle-income (with a GNI per capita between $4,046 and $12,535) and high-income countries (with a GNI per capita of $12,536 or more) as defined by the World Bank, that are often considered less vulnerable to corruption. As Graycar and Monaghan ( 2015 , p. 587) assert, “corruption is different between countries with established democracies and those in a state of political-economic development or transition”. Consequently, anti-corruption measures should vary with the state of development in a given country. Hence, focusing our review on richer countries provides a purposeful grouping and can potentially deliver additional insights concerning anti-corruption measures.

Therefore, we aim to make three main contributions to the research field. First, by focusing on the anti-corruption measures, we shed light on the extent to which evidence has been generated on their use and effectiveness. Second, by giving a central role to the organizational and individual level in corruption studies, we shift attention to the practices and processes of implementation that can affect their effectiveness within public institutions. Third, arising from the integrated nature of the review, we propose an agenda for future research on corruption prevention.

The paper proceeds as follows. The following section introduces a conceptualization of corruption; the third section presents the major streams in corruption prevention research, and the fourth section outlines the agenda for future research.

The Nature and the Causes of Corruption

If, as already mentioned, the analysis and therefore the awareness of the effects of corruption have certainly motivated a renewed interest on the part of institutions in activating policies of prevention and not only of contrast, on the other hand, it is precisely the desire to "prevent" that makes in-depth study of the nature and causes of corruptive phenomena increasingly relevant. Dimant and Tosato ( 2018 ) summarise findings relating to 22 single causes of corruption (see Table 1 in Dimant & Tosato 2018 for a summary), also identifying new developments. For example, there is evidence that corruption is contagious and spills over to neighboring countries and it works both ways, i.e., for corruption prevention policies. This is a field of investigation that is characterized by a long tradition of studies, demonstrating unequivocally the complex and multidimensional nature of corruption (Capasso & Santoro, 2018 ) and, therefore, the multifaceted nature of the motivation to engage in corrupt behavior (Bicchieri & Ganegonda, 2017 ; Dimant & Schulte, 2016 ), which requires a multilevel analysis approach where micro-meso and macro-level are necessarily interdependent. In particular, as Aguirre ( 2008 , p. 13) argues, "addressing one level of the triad, without ignoring another, renders the entire system ineffective."

Approaches to understanding corruption at the micro-level have invoked the “bad apples” analogy (Anand et al., 2004 ), i.e., such approaches emphasize the combination of contextual and individual psychological factors that bring about corrupt behavior as a result of questionable moral standards. For example, according to Cressey’s ( 1953 ) fraud triangle model, opportunity, motivation, and rationalization efforts combine to enable corrupt behavior. While such individual-level explanations remain popular in applied empirical research on fraud and corruption (Homer, 2020 ; Le et al., 2021 ), researchers also criticized the fraud triangle for its heavy emphasis on individual-level factors, which are unable to explain more socio-systemic triggers of fraud (Suh et al., 2020 ) and its incapacity to capture different notions of financial crimes (Huber, 2017 ). Notwithstanding these criticisms, a detailed analysis of the origins and use of the fraud triangle by Morales et al. ( 2014 ) identifies the fraud triangle as a trigger stimulating the development of organizational controls as a countermeasure to the emergence of corrupt behavior. Consequently, Morales et al., ( 2014 , p.185) conclude that the “(…) fraud triangle has been harnessed as a tool, in the service of practitioners and theorists, to promote a branch of knowledge that views fraud at the juncture of an individual and organizational problem”. In fact, part of the specialized literature has devoted itself to this over time (Hinna et al., 2018 ), studying the basis of the corruption phenomenon at the firm level, thus integrating itself into a more traditional and established macroeconomic literature, by offering a socio-psychological view on why individuals engage in corrupt acts.

Specifically, focusing on the organizational level of corruption, the literature has analyzed the causes of corruption from the point of view not only of what determines the “opportunity” of a corrupt action but also of what could “incentivize” it, combining a macro level of analysis with a meso level of analysis. In terms of opportunity, Klitgaard et al., ( 2000 , p. 35) state that an individual “will have the opportunity to garner corrupt benefits as a function of their degree of monopoly over a service or activity, their discretion in deciding who should get how much, and the degree to which their activities are accountable”. It follows that, on the opportunity side, the prevention of corruption can be effectively achieved through an improvement of control systems on operators, a limitation of their monopoly conditions, and an increase in the level of transparency of the actions implemented by them.

Other types of arguments focus on the study of the “incentives” to carry out corrupt acts. As these are inevitably correlated to the characteristics of the environmental and organizational context, one needs to consider how they, therefore, “interact” with the characteristics of organizational actors and that can be at the base of their corrupt behavior. In particular, two arguments can be distinguished.

First, with reference to the external context of the individual firm, beyond the aforementioned spaces of “opportunity” that may be created by environmental features such as turbulence and munificence, as well as low rivalry intensity or complex and ambiguous characteristics or newly enacted legislation, other two main factors of “environmental” origin are identified as underlying corruption risk (Baucus, 1994 ): (a) the “pressure” to which the company is subjected, due not only to elements of fore competitiveness of the markets but also to the possible scarcity of available resources or to a regulatory framework in constant evolution; (b) a “predisposition,” deriving from a context with a significant and consolidated level of illegality.

Second, with reference to the internal context of the individual company, some pioneering contributions (i.e., Albrecht et al., 1984 ) have gradually developed the original model of Cressey, precisely focusing on the formal and informal dimensions of work organization, investigating not only organizational structures and processes but also operating systems and the social and cultural dimensions of the organization, as possible determinants of individual behavior (Palmer, 2012 ). This allows the study of whether they could alternatively push individuals toward wrongdoing (i.e., the need to guarantee a certain level of performance) or “justify” corrupt behavior, whether in response to corporate interests or interests of an individual nature (Hinna et al., 2016 ; Palmer, 2012 ).

Therefore, through the combination of economic, social and psychological theories and perspectives, the set of contributions provided to date in the literature allows for an integrated view for understanding corruption, which is not limited to the analysis of only individual factors but expands to both the relationship between the individual and organizations, and between the organization and the context in which the company operates (Fig.  1 ).

Source: Hinna et al., ( 2016 , p.155)

Environment (macro), organization (meso), and individual (micro) relationship: the integrated model of organization corruption determinants.

Major Streams in Corruption Prevention research

The analysis of the results that emerged in the literature review allows us to make several considerations on how the research overcomes the traditional repressive approach to corruption to adopt a more preventive one. We begin with describing a few general patterns found in the articles reviewed and proceed then to a more detailed discussion of three main themes which are related to (i) the attempts to generate more transparency at the macro-level, (ii) identification of initiatives at the organizational level that complement transparency enhancing measures and (iii) micro-level individual processes with relevance for preventing corrupt behavior.

Major Patterns Observed in the Literature

Reviewing the articles included, first we find that studies analyzing corruption have significantly increased during the period under analysis (2001–2020). More specifically, out of the 118 works examined, 82 percent of the publications were published in the last ten years (2010–2020) (Fig.  2 ).

Focus of the publications

The second consideration is that the research interest has progressively turned to the theme of corruption prevention. This is already evident by observing the number of papers dedicated explicitly to preventive measures. But it is further confirmed by the papers dedicated to the causes of corruption, as a typical object of investigation for the choice and evaluation of prevention strategies. However, although the combination of studies dealing with the causes and preventive measures of corruption increasingly outweighs studies focusing on its consequences over time, it is worth noting that the relationship between causes and related anti-corruption measures is still rarely discussed. This is particularly evident in studies focusing predominantly on one or the other aspect. In fact, only 20 works in our sample investigate both the causes and the related preventive measures, realizing an effective contextualization of the proposed measures against the identified causes.

A third element that stands out concerns the methodological perspective. Our research shows that most works adopt empirical approaches of which 58 percent (69 studies) qualifies as quantitative work, whereas 24 percent (28 studies) qualifies as qualitative work. Only 16 percent of articles (19 studies) are conceptual in nature or qualify as some form of review (2 percent, 2 studies). As corruption is notoriously difficult to observe, it is not surprising that quantitative studies rely primarily on country rankings based on international corruption indices such as the Transparency International Corruption Index or World Governance Indicators. At the same time, it is worth noting the unexpected predominance of quantitative studies in a field of research that does not yet present consolidated theoretical and explanatory models.

A fourth consideration is related to the alignment of the emerging literature adopting the preventive approach with the fundamental principles of the Merida Convention, which also highlights the adoption of measures aimed at avoiding the occurrence of corrupt behaviors in the organizational context. Indeed, the primary level of analysis adopted by the studies: 53 percent of the studies analyzed (63 studies) indicate that academic interest is moving towards a meso level of analysis, thus responding to the demand for studies that go beyond the macro-level (52 studies, 44 percent) to investigate organizational and behavioral aspects related to corruption (Jain, 2001 ). The meso-level analysis is mainly adopted by studies addressing the causes of corruption and the related measures (see Table 1 below).

More specifically, according to the key principles of the Merida Convention and consistent with distinct levels of analysis, some dominant themes emerge in the specialized literature: transparency and accountability strategies, human resource management (HRM) system, individual attitudes, and behaviors.

Finally, it is noteworthy that only one paper investigates a prevention system based on a “risk-based” approach (Van der Wal et al., 2016 ). Using data from 36 Victorian (Australia) public sector bodies the authors examined public officials' perceptions and the ability to identify and analyze corruption risks, the strategies to mitigate these risks, and the integrity mechanisms in place (Van der Wal et al., 2016 ).

Addressing Corruption through Transparency

At a macro level of analysis, one of the dominant themes is undoubtedly centered on the concepts of transparency and openness and how they in turn contribute to tackling corruption in the public sector with its promise to increase the chances of accountability. Transparency and anti-corruption policies have experienced a rapid spread worldwide – from the dramatic increase of freedom of information laws to the recent Open Government Partnership.

One example addressing the transparency argument is the work by Escaleras et al. ( 2010 ) asking if freedom of information acts have been an effective measure against corruption. Their findings do not support the effectiveness of freedom of information laws as a deterrent to corruption and remain neutral. But they support a moderating effect of institutional quality. They even find an increase in corruption for developing countries in the presence of freedom of information legislation. Hence, they conclude that freedom of information acts might be a small complementary measure in anti-corruption campaigns.

In contrast, in a study with a sophisticated empirical design de Simone et al. ( 2017 ) show that increasing fiscal transparency is an effective measure in the fight against corruption. Similarly, using data from the World Values Survey, Capasso et al. ( 2021 ) support the view that transparency creates incentives for individuals to be rule compliant and thus is an effective anti-corruption measure. Global pressure has played a significant role in policy dissemination and in some cases has also created an external pressure for legitimacy that has empowered domestic policymakers and facilitated the related adoption processes (Schnell, 2015 ).

However, the beneficial effect of government transparency may be contingent on the nature of the demand for accountability, as well as on a series of "heroic assumptions" (Fukuyama, 2015 , p. 16) about the nature of stakeholders' willingness and ability to act upon the information received (Bauhr & Nasiritousi, 2012 ; Kolstad & Wiig, 2009 ). With their empirical research in public procurement, Bauhr et al. ( 2020 ) contribute to this debate with two significant elements. The first is the need to develop a theoretical distinction between ex-ante and ex-post transparency, the second is to consider the fact that the mere publication of relevant information is not enough for holding governments to account, as the legal and technical complexity of data presents substantial barriers to data use. Ayhan and Üstüner ( 2015 ) study reforms on public procurement in Turkey. While the initial aim of creating a more transparent public procurement system triggered the process, their analysis reveals an overall quality decline in the Turkish procurement system. One reason they identify is the dilution due to an increase in regulations (i.e., they report that about 20 amendments have been made to the original regulation) thereby creating untransparent rules, procedures, and regulations undermining anti-corruption efforts.

Often the need to build a transparent procurement environment inevitably passes through the adoption of technologically innovative solutions, such as e-procurement platforms (Liao et al., 2003 ). Understandably, the adoption of an innovative e-government approach should not be seen as a panacea for corruption problems in public organizations. A recent work by Wu et al. ( 2020 ) examines the potential and limitations of using e-government as an innovative anticorruption measure from the perspective of public officials in China and India, verifying that the effectiveness of this measure varies based on the political, economic, and cultural conditions of a country.

However, the implementation of an e-governance system is not only associated with the issue of transparency but—more generally—with the second important research stream identified at a macro level: good governance as a corruption prevention tool. In this sense, using cross-national secondary data from 191 countries, Chen and Aklikokou ( 2021 ) demonstrate a positive association between e-governments’ development and government effectiveness, as well as between e-governments’ development and their control of corruption.

In the same research field, the focus is often aimed at evaluating the degree to which public administration reforms contribute to corruption reduction (Andrei et al., 2009 ; Matei & Matei, 2009 ; Neshkova & Kostadinova, 2012 ; Segal & Lehrer, 2012 ). Other works take into consideration more specific reform processes, such as the adoption of quality public sector accounting (Lewis & Hendrawan, 2020 ) or auditing practices (Gustavson and Sundström, 2018 ) that can assist in reducing corruption. Similarly, Christensen and Fan ( 2018 ) report on the introduction of an anti-corruption campaign in China characterized by strict reporting rules between local and central governments. Such reporting rules discourage supervisors from covering up lower-level employees' misbehavior, hence increasing transparency. But Christensen and Fan ( 2018 ) also acknowledge the limitations of such institutional measures by highlighting that also deeply ingrained cultural attitudes need to be changed. They see the anti-corruption campaigns as a vehicle to do so.

Addressing Corruption through the HRM System

An HRM system integrates practices of pay and reward, recruitment, selection, training and development, career progression and related HRM practices. Berman ( 2015 ) offers a detailed discussion on how HRM can support efforts to fight corruption. Regarding the HRM system, several empirical studies have investigated the anti-corruption effect of the different HR practices. HRM efforts may also instill career commitment, loyalty and pride in serving the public. Therefore, highly selective recruiting procedures, appropriate onboarding and continuous training (Beeri et al., 2013 ) and socialization efforts may contribute to building a public sector workforce that is less inclined to engage in corrupt practices. In this sense, robust HRM systems act as an antidote to corrupt behavior (Berman, 2015 ). For example, looking at the recruitment of public officials in Denmark, Barfort et al. ( 2019 ) investigated whether a systematic self-selection of honest types into public service may be one channel that helps sustain a low level of corruption and found that dishonest individuals are more pecuniarily motivated and self-select out of public service and into higher-paying private-sector jobs.

A traditional argument in the corruption literature focuses on public officials’ compensation ( inter alia , seminal work of Becker & Stigler, 1974 ). Higher salaries (compared to private sector salaries) that allow individuals to sustain their living costs are commonly seen as a deterrent to corruption. Individuals working under such conditions are simply less inclined to accept bribery payments or other gifts. While van Veldhuizen ( 2013 ) confirms this argument empirically in a laboratory experiment, showing that higher wages make individuals less corruptible, the broader review of the literature reveals a more nuanced picture. For example, setting up a theoretical model Macchiavello ( 2008 ) challenges the idea that the relationship between wages and corruption is monotonic. However, this study does not provide systematic empirical evidence to support the claim. In contrast, work by Chen and Liu ( 2018 ) and Dhillon et al. ( 2017 ) present empirical evidence on the wage argument. Chen and Liu ( 2018 ) study bribes received by Chinese officials based on court proceedings data and find a U-shaped relationship. Thus, according to their results, higher wages are effective when base salaries are low but increasing salaries as an anti-corruption measures loses its effectiveness when wages are at elevated levels already and when bribes can be negotiated. Results presented by Navot et al. ( 2016 ) who study a dataset consisting of 58 countries, highlight that higher wages may increase public corruption and demonstrate that people with a stronger sense of belonging tend to be less affected by pecuniary incentives. This finding is consistent with theories about intrinsic motivation.

Researchers have tested whether the relationship between performance rewards and corruption is conditioned by patronage-based recruitment (Campbell, 2020 ). They discover, through a comparison of over 100 countries, that the effect of pay on corruption is negative when clientelism is low but not significant or positive in countries where clientelism pervades the hiring process. On the same theme, Egeberg et al. ( 2019 ) oriented their studies to answer whether a system of recruitment based on merit enhances good and non-corrupt governance. In their case, the field of investigation was the European Union regulatory (decentralized) agencies and it emerged that these agencies seem to overwhelmingly apply meritocratic instruments when hiring people, regardless of their location.

Specific personnel management measures are also considered potential corruption prevention tools. For example, under the job rotation, public officials are less likely to accept bribes and this leads to less manipulated decision-making by public officials (Fišar et al., 2021 ). Also well-curated content for employee training may mitigate the corruption problem. For example, Luk ( 2012 ) recommends a three-pronged approach advocating the integration of ethical leadership, ethical training, and ethics legislation for maintaining the integrity of the civil service in Hong Kong.

Addressing Corruption by Influencing Individual Attitudes and Behaviors

Considering the results of the review, several authors have recently addressed the determinants of corruption at the individual level. Among others, Mangafić and Veselinović ( 2020 ) analyzed the effects of individual determinants on the likelihood of engaging in bribery, confirming that specific personal characteristics predicted corrupt behavior. Rabl ( 2011 ) explores the effect of contextual variables on the willingness of the individual to accept a bribe using laboratory experiments. Furthermore, Nichols and Robertson ( 2017 ) underscore the need to explore the role of moral emotions for bribery research. Another study demonstrated how dishonesty is strongly negatively correlated with public service motivation (Olsen et al., 2019 ).

The analysis of individual psychological determinants conducted by Kakavand et al. ( 2020 ) provided elements for HRM to understand workplace corruption better. The main results highlight that sense of mastery, distributive justice and procedural justice have a negative impact on workplace corruption, whereas powerlessness has a positive effect on workplace corruption. A further implication is that by staying in tune with motivational processes a HRM system is suited to prevent corrupt mechanisms fueled by frustrated or endangered motivational resources (Kakavand et al., 2020 ). Also Dhillon et al. ( 2017 ) offer a perspective based on psychological economics by applying a crowding-out logic (Frey et al. 2013 ) to explain the effects on bribe acceptance. In their theoretical model, they acknowledge the variety of individual motivational dispositions. Furthermore, they argue that concern for the collective reputation of the profession may be at play. They conclude that “optimal policies to reduce corruption should take account of the competing motivations for public sector work and the importance of maintaining a high status in the public sector as opposed to private sector work” (Dhillon et al., 2017 , p.3).

The consideration of motivation also prompts thoughts on incentive systems in general. In a corrupt transaction both parties, e.g., a bribe-giver and a bribe-taker, are subject to different incentives to engage in the corrupt activity. Addressing this situation, some authors have argued that the nature of corruption is a decisive factor in determining such incentives. Capasso and Santoro ( 2018 ) distinguish between active (i.e., bargaining power to set bribe lies with the official) and passive (i.e., bargaining power lies with the private actor) corruption. Based on their empirical analyses, they recommend monitoring and strict supervision as more effective deterrents to active corruption whereas controls are more effective when fighting passive corruption.

Research further emphasized the impact on individual behaviors deriving from the adoption of codes of conduct or ethical leadership (Thaler and Helmig, 2016 ). In this empirical research carried out in Germany, it emerges that only ethical leadership has a positive effect on employees' organization-related attitudes. Consistently with this evidence, Janenova and Knox ( 2020 ) demonstrate how the introduction of specific ethics commissioners improves the benefits deriving from the adoption of the code of conduct in the context of Kazakhstan.

The encouragement of whistleblowing and protection of whistleblowers is the last dominant theme that emerged. A literature review published ten years ago on the wave of growing interest in the subject, despite the lack of empirical knowledge, discussed new theoretical and methodological areas of research in the domain of whistleblowing (Vadera et al., 2009 ).

As the decision to blow the whistle is rooted in the individual, the works analyzed in this review illustrates the interplay between the individual (micro), the organizational (meso) and the macro level. In order to encourage whistleblowing, both the organization and the legal system need to implement protection measures for the individuals involved. Hence, the literature reviewed highlights the complementary role organizations need to assume in anti-corruption initiatives as institutional measures may not be sufficient.

Following this path, recent studies have worked on: the content and effectiveness of whistleblowing policies (West and Bowman, 2020 ); the whistleblowing process, especially from a practitioner perspective (Vandekerckhove & Lewis, 2012 ); the organizational conditions necessary to encourage the whistleblowing (Previtali & Cerchiello, 2018 ), the determinants of a whistleblowing intention (Vadera et al., 2009 ; Cassematis & Wortley, 2013 ; Chang et al., 2017 ), and the influence of the ethical position on whistleblowing behavior in private and public contexts (Nayır et al., 2018 ). Noteworthy in this context is the work by Chang et al. ( 2017 ) on whistleblowing as it zooms in on the determinants of whistleblowing beyond mere institutional and regulatory protections. In their large-scale analysis of Korean public officials, they identify perceived colleague support and organizational support as significant antecedents to the willingness of individuals to blow the whistle in the presence of observed wrongdoing by others.

Instead of looking only into whistleblowing policies, organizations may also consider enforcement policies. For example, Burlando and Motta ( 2016 ) developed an anti-corruption enforcement model demonstrating that, within an optimal compensation scheme, legalization can play a critical anti-corruption role. In fact, they found that fiscal and legalization policies have an impact on reducing enforcement costs because they affect individual incentives to crime and corruption rents. Despite the model and the debate on the enforcement issue present at the global level, the two authors point out some significant limitations to this type of policies, in particular the negative implications on people’s trust, that could interpret the legalization as a repugnant policy.

Taking a similar perspective on enforcement, Capasso et al. ( 2019 ) analyzed a dataset on 80 countries to assess the relative effectiveness of various types of law enforcement, judicial efficiency and broader measures of related institutional quality, demonstrating that strengthening country-level institutions is the most powerful deterrent to corruption. The main and most interesting implication from this study is that “comprehensive improvements in enforcement involving better institutions related to law and order are more effective in combating corruption than focus on individual dimensions of enforcement” (Capasso et al., 2019 , p. 357), hence stressing once again the need for a holistic approach to fight against corruption.

Future Research Agenda

This work reviewed the literature on public sector anti-corruption for upper-middle- and high-income countries. We assessed 118 studies identified by our search methodology according to a wide range of criteria, such as country of origin, methodological approach and its quality, level of analysis, scope, and anti-corruption approach, among others.

The problem of preventing corruption has long been an international political priority, and the need to activate policies of prevention, and not merely repression, of corruption is unequivocally present in both the UNCAC and the various control mechanisms, such as the Group of States against Corruption (GRECO) or the OECD’s Working Group on Bribery in International Business (WGB). As demonstrated by our review, the academic literature has responded to these demands and progressively focused its efforts on the prevention of corruption, which also highlights the adoption of measures aimed at avoiding the occurrence of corrupt behaviors in the organizational context.

Our research demonstrates an increasing adoption of the organizational level of analysis to investigate the determinants and the possible measures for corruption prevention and it outlines a new additional item which is the recognition of the individual as an essential element to explore both the causes and the specific measures which impact individual behaviors.

Concerning preventive measures, the study highlights a substantial alignment between the guidelines deriving from the Merida Convention and the dominant themes of interest in the academic debate, except for a lack of work on the risk-based approach to corruption prevention. From this vantage point, while corruption is increasingly considered a risk to public organizations’ performance (Power, 2007 ), the findings of the review suggest that little is known about the activities of various public organizations in promoting the logic of risk management or about the impact of these activities for administrations. This evidence is surprising as an exception to the importance that the management of risk has assumed a central role in public policy and management (i.e., Brown & Calnan, 2013 ; Hood et al., 2004 ; Miller et al., 2008 ) and raises some questions about the processes of analysis, evaluation and choice of prevention measures that, if not linked to an effective risk assessment, could be adopted in a standardized form.

From this point of view, there is a need to study risk management systems and processes for anti-corruption, also to better understand the link between causes and measures of corruption. Academic literature (Jain, 2001 ; Jancsics, 2019 ) and the international conventions stress the importance of linking the causes of corruption to the possible measures for formulating better policies and more effective identification of the appropriate recipe for the specific context. However, our review found that in academia, the alignment between causes and potential measures for combating corruption is still poorly investigated both at organizational and individual levels. This is particularly problematic as this missing link often hinders the effectiveness of anti-corruption policies with consequences on the interests and objectives of academic research as well as for theoretical or practical relevance.

Moreover, because of the nature of the research object and to build a plausible explanation for the causal relationship that links antecedents and countermeasures of corruption in specific organizational contexts, exploratory analyses are required (Benbasat et al., 1987 ). In this regard, the low number (and depth) of qualitative studies is surprising since the qualitative research methodology is beneficial in fields of study where it is still necessary to understand the studied reality, where consolidated theoretical and explanatory models cannot yet be found.

While the methodological challenges are severe, it is possible to overcome them. One issue lies in the hidden, invisible nature of corrupt activities which creates difficulties for empirical study. However, researchers can work on making it visible and it could be successful with regard to smaller payments, i. e. in the form of petty corruption. A case in point is the use of publicly available data that potentially makes corrupt activity visible and can be studied. For instance, Schoeneborn and Homberg ( 2018 ) exploited reports on a website to make small bribes visible. Another example is displayed in Bauhr et al. ( 2020 ) which presents an analysis based on publicly available information about public procurement tenders involving more than 100,000 observations. Corruption is made visible here by analyzing the number of participants in bids. Additional opportunities arise from the use of algorithms and computer science techniques that can identify hidden patterns through a combination of different databases, such as described in Velasco et al. ( 2021 ), who used data mining techniques to identify corruption risk patterns. As far as field studies are concerned, researchers can choose settings that allow them to make relevant observations such as Olken and Barron ( 2009 ) who studied more than 6000 illegal payments made by truck drivers to officials in Indonesia. Additionally, ethnographies or other forms of qualitative inquiry could help understand where institutional setups break down or which anti-corruption measures have design flaws. Therefore, overall, creative research designs can overcome some of the challenges that plague corruption research.

This literature review has provided a snapshot of the current state of the literature on corruption in upper-middle-income and high-income countries, highlighting future research needs to address. First, more attention to risk management processes is required; second, a stronger focus on the interrelationship between causes and solutions for corruption is needed; and third, more creative effort needs to be put into study design in order to generate solid evidence on corruption at the organizational and individual level. As the corruption literature grows further, we are confident that researchers will be able to address these challenges.

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Ceschel, F., Hinna, A. & Homberg, F. Public Sector Strategies in Curbing Corruption: A Review of the Literature. Public Organiz Rev 22 , 571–591 (2022). https://doi.org/10.1007/s11115-022-00639-4

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Economic growth, corruption, and financial development: Global evidence

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Corruption is a Global Problem for Development. To Fight It, We All Have a Role to Play

Oped published in French in La Tribune Afrique, June 13, 2023.

Oped by Ousmane Diagana, World Bank Vice President for Western and Central Africa and Mouhamadou Diagne, World Bank Vice President for Integrity.

Every day, we hear about the onslaught of crises facing the world—from climate change to conflict, inflation and debt, and the ongoing recovery from a years-long pandemic. Add to them the prospect of slow economic growth , and our efforts to overcome these challenges seem rife with obstacles. For developing countries, many with limited and already stretched resources, the confluence of crises will be especially difficult to navigate.

But if we are to achieve success over the challenges of our time, there is one scourge we cannot fail to confront: corruption.

The unfortunate truth is that corruption persists in all countries. It manifests in many ways—from petty bribes and kickbacks to grand theft of public resources. With advances in technology, corruption has increasingly become a transnational challenge without respect for borders, as money can now move more easily in and out of countries to hide illicit gains.

Corruption is also a fundamental problem for development.

Corruption harms the poor and vulnerable the most, increasing costs and reducing access to basic services, such as health, education, social programs, and even justice. It exacerbates inequality and reduces private sector investment to the detriment of markets, job opportunities, and economies. Corruption can also undermine a country’s response to emergencies, leading to unnecessary suffering and, at worst, death. Over time, corruption can undermine the trust and confidence that citizens have for their leaders and institutions, creating social friction and in some contexts increasing the risk of fragility, conflict, and violence.

To prevent these negative impacts, we must confront corruption with determined and deliberate action. For the World Bank Group, fighting corruption in development has been a long-standing commitment in our operational work. This commitment is reflected in our support for countries in building transparent, inclusive, and accountable institutions , but also through initiatives that go beyond developing countries to also include financial centers, take on the politics of corruption more openly than before, and harness new technologies to understand, address, and prevent corruption.  

Indeed, across western and central Africa in particular, it is one of the World Bank Group’s strategic priorities to emphasize issues of good governance, accountability, and transparency among our partner countries, with the aim of reducing corruption. We recognize that transparency in public affairs and the accountability of high-level officials are fundamental to the trust of citizens in their government and the effective delivery of public services. Working to rebuild and bolster trust between citizens and the state is critical today, especially in countries affected by fragility, conflict and violence that make up half of the countries in this region alone.

Across Africa, World Bank Group support is helping countries face these challenges. Recent investments in the Republic of Congo , Ghana , and Morocco , for example, will support institutional governance reforms to improve the performance and transparency of service delivery. In Kenya, our support will further fiscal management reforms for greater transparency in public procurement , thereby reducing opportunities for corruption. Strengthening citizen-state engagement is key: In Burkina Faso, for example, a World Bank-funded project helped the national government improve citizen engagement and public sector accountability through the development of a digital tool to monitor the performance of municipal service delivery. 

The World Bank Group’s commitment to fighting corruption is also reflected in robust mechanisms across the institution that enhance the integrity of our operations. Our independent Integrity Vice Presidency (INT) works to detect, deter, and prevent fraud and corruption involving World Bank Group funds. Over two decades of INT’s work, the World Bank has sanctioned more than 1,100 firms and individuals, often imposing debarments that make them ineligible to participate in the projects and operations we finance. In addition, we have enforced more than 640 cross-debarments from other multilateral development banks, standing with our MDB partners to help keep corruption out of development projects everywhere. Nevertheless, we must remain vigilant to the risks of fraud and corruption that remain.

The World Bank Group also leverages its position as global convener to support anticorruption actors at all levels and from around the world. That is why we are pleased to have organized the next edition of the World Bank Group’s International Corruption Hunters Alliance (ICHA) to take place in Abidjan, Côte d’Ivoire, on June 14-16, 2023.

The ICHA forum is an opportunity for front-line practitioners committed to fighting corruption as well as policy makers and representatives from the private sector and civil society, to come together to share knowledge, experience, and insights for confronting corruption. For the first time since its inception in 2010, we are hosting the ICHA forum in an African country. This reflects the reality that the negative impacts of corruption can be more devastating for developing countries, who face unique challenges and have fewer resources to overcome them. Yet, it also acknowledges that there is a wealth of anticorruption strengths, skills, and expertise from these countries that we must draw upon.

Together, we can affirm that through our collective action, we can advance the fight against corruption even in an era of crises.  

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How does corruption affect economic growth?

.chakra .wef-1c7l3mo{-webkit-transition:all 0.15s ease-out;transition:all 0.15s ease-out;cursor:pointer;-webkit-text-decoration:none;text-decoration:none;outline:none;color:inherit;}.chakra .wef-1c7l3mo:hover,.chakra .wef-1c7l3mo[data-hover]{-webkit-text-decoration:underline;text-decoration:underline;}.chakra .wef-1c7l3mo:focus,.chakra .wef-1c7l3mo[data-focus]{box-shadow:0 0 0 3px rgba(168,203,251,0.5);} Anna Kochanova

.chakra .wef-9dduvl{margin-top:16px;margin-bottom:16px;line-height:1.388;font-size:1.25rem;}@media screen and (min-width:56.5rem){.chakra .wef-9dduvl{font-size:1.125rem;}} Explore and monitor how .chakra .wef-15eoq1r{margin-top:16px;margin-bottom:16px;line-height:1.388;font-size:1.25rem;color:#F7DB5E;}@media screen and (min-width:56.5rem){.chakra .wef-15eoq1r{font-size:1.125rem;}} Corruption is affecting economies, industries and global issues

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Corruption is considered a strong constraint on growth and development. The academic literature, however, finds different effects of corruption on economic performance.

• Some research considers corruption a ‘grease the wheels’ instrument.

In this view, corruption helps to overcome cumbersome bureaucratic constraints, inefficient provision of public services, and rigid laws (Huntington 1968, Lui 1985, Lein 1986), especially when countries’ institutions are weak and function poorly (Acemoglu and Verdier 2000, Meon and Weill 2010).

• Other papers argue that corruption only reduces economic performance.

This is due to rent seeking, an increase of transaction costs and uncertainty, inefficient investments, and misallocation of production factors (Murphy et al. 1991, Shleifer and Vishny 1993, Rose-Ackerman 1997) that come with corruption.

• A third stream finds ambiguous effects of corruption can be illustrated with respect to public finances in new EU member states.

Hanousek and Kocenda (2011) show that reductions in corruption either increase or decrease public investment, depending on the country and its institutions.

On the other hand, improvements in the corruption environment are mostly associated with better fiscal performance (decreases in the deficit as well as debt).

New research

In a recent paper (Hanousek and Kochanova 2015), we attempt to provide an explanation of the divergent effects found in the previous literature. We examine whether bureaucratic corruption, measured as the frequency of unofficial payments to public officials to ‘get things done’, impacts the sales and labour productivity growth of firms in Central and Eastern European countries.

To identify this relationship is not an easy task, since bribery and firm performance can influence each other through other unobservable factors. In addition, it is difficult to have good quality data on both corruption and firm financials. Therefore, we use firm economic performance data from the Amadeus database, and enrich them with the information on bribery practices from BEEPS.[1] To combine the two datasets, we consider ‘local markets’ as clusters formed by country, double-digit industry, firm size, and location size. Within those markets we compute the mean and dispersion of individual firm bribes, and assign them to every firm from Amadeus belonging to the same cluster. Given that we cannot observe firm-specific bribery practices, these two measures are the best way to characterise local bribery environments. The mean of firm bribery proxies the equilibrium level of bureaucratic corruption. The dispersion of bribery represents the distribution of firms’ bribing behaviour formed by their willingness to pay bribes, the variety of bribing strategies, the discretionary power of public officials to extract bribes, and uncertainty regarding environments.

We find that the ambiguous consequences of corruption found in previous studies could be explained by divergent effects of the mean and dispersion of corruption.

• In particular, a higher bribery mean retards both the real sales and the labour productivity growth of firms.

This is generally consistent with the existing firm- and macro-level empirical research.

• In contrast, a higher bribery dispersion of individual firm bribes facilitates firm performance (see Figure 1).

This implies that in more dispersed local bribery environments at least the majority of bribing firms receives preferential treatment from public officials, which allows them to grow fast. Their non-bribing (or less frequently bribing) competitors are likely more efficient in production and growth and are better at complying with bureaucratic regulations, as otherwise they would be displaced from the market. In less dispersed bribery environments all firms bribe in a similar way. Bribery acts as an additional fee, or an increase in operational costs that only impedes firm performance.

Figure 1. Average bribery mean and dispersion effects on the sales and productivity growth of firms

Note: the average real sales growth is 4.6% and the average labour productivity growth is 3.1% in our data.

We also find that the effects from bureaucratic corruption are larger in the case of labour productivity growth, suggesting that bribery affects the employment structure of firms. In highly corrupt environments, firms likely employ a non-optimal (higher) number of workers due to a misallocation of talent, in accordance with Murphy et al. (1991) and Dal Bo and Rossi (2007). Some employees may be engaged in unproductive activities such as searching for ways to circumvent bureaucratic constraints. It may also be the case that the corrupt local government does not allow firms to dismiss workers in order to keep high employment figures in the region and loyal voters. However, bribing firms that have an opportunity to gain a competitive edge (in more heterogeneous environments) are able to adjust the employment structure to an optimal level and increase effectiveness.

Our empirical analysis demonstrates a two-way effect of bureaucratic corruption on firm performance. The existence of a certain number of firms that bribe increases aggregate firm performance, which is in line with the theoretical inference of Acemoglu and Verdier (2000). The chance to receive benefits from bribery may be one reason why corruption does not vanish in spite of its overall growth-restraining effect (Mauro 1995).

One possible task for policymakers could be to improve the transparency of interactions between firms and public officials. That could reduce the discretionary power of both firms and officials, lower the preferential gains from corruption, and decrease both the mean and dispersion of bribery.

This article is published in collaboration with Vox EU . Publication does not imply endorsement of views by the World Economic Forum.

To keep up with the Agenda subscribe to our weekly newsletter .

Author: Jan Hanousek is a Full Professor at CERGE-EI; Research Fellow at the William Davidson Institute, Michigan Business School; Research Fellow, CEPR. Anna Kochanova is a Senior Research Fellow, Max Planck Institute for Research on Collective Goods.

Image: A young Iraqi girl holds out her money as she queues for the early morning bread at the bread factory in Baghdad May 20 2003. REUTERS/Kieran Doherty.

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Our services back, our knowledge back, our offices back, the effects of corruption on economic development.

Mahmoud Moustafa

Effects of Corruption & Importance of Combating Corruption

On the 28th of April 2004 Mr. Daniel Kaufmann (Global Governance Director of the World Bank Institute) – commenting on the costs of corruption- stated that: “a conservative approach to such measurement gives an estimate for annual worldwide bribery of about US 1 trillion dollars.” 1

Corruption can take many forms that vary in degree from the minor use of influence to institutionalized bribery. Transparency International’s definition of corruption is: “the abuse of entrusted power for private gain”. This can mean not only financial gain but also non-financial advantages. 2

Definition of Corruption

The definition of corruption and how much money it involves is not a particularly challenging notion to tackle. This paper, rather, brings to the attention of the reader the economic importance of combating corruption. The aim is to show the reader:

• the role law plays in economic development,
• the negative effects of income inequality on sustainable economic development and importance of redistribution on grounds of the Marginal Utility theory
• redistribution as the most effective method of eradicating poverty
• the negative effects of low approval ratings (unhappiness) on sustainable economic development and
• the negative effects of corruption on redistribution as well as approval ratings and consequently on sustainable economic development.

The argument simply put is as follows:

• empirical studies show that countries with a better redistribution of wealth enjoy longer periods of economic development.
• Redistribution of wealth is justified by the idea that if utility is the building block of economic policy then redistribution of wealth is a favourable on the grounds that it brings upon well being to the greatest possible number of people (since the poor’s benefit is much greater than the rich’s loss out of the redistribution process).
• Redistribution (based on the idea of Marginal Utility) should only limited by the idea of Efficiency Cost (when it robs production from individual incentive) 3
• Countries suffering from corruption cannot implement sound redistributional policies and thus are not expected to take benefit from sustainable economic development despite embarking upon economic growth from time to time for some reason or the other.

The argument, simply put, as well, has it that empirical studies show that countries with higher approval ratings (happiness index) enjoy longer periods of economic development. Countries suffering from corruption have low approval ratings because of the public’s frustration of their legitimate expectations, impressions of unfair treatments, expectations of unequal treatment which impose a great risk on individual incentive to produce (Efficiency Cost).

Whereas some would differentiate between bad and good corruption arguing that only corruption 4 which is associated with poor institutions has a negative effect on GDP growth whilst residual corruption (corruption which is uncorrelated with other governance characteristics) is positively related to GDP growth with poor institutions. This line of thought has it that an analysis of financial data is positively correlated with capital accumulation and productivity growth in developing countries and that these empirical findings are consistent with the theory that corruption helps overcome inefficient barriers.

This article argues that all forms of corruption are intrinsically bad (from an economic point of view) justifying the contemporary global practice of combating corruption.

The paper will show how corruption, if left unchallenged, undermines a country’s attempts to:

• fight poverty and inequality (redistribution of wealth)
• increase approval ratings (happiness index)
• consequently, engage in sustainable development. The paper attempts to do so by reflecting upon the role of law in economic development as well as shedding some light on current economic development policies and how paramount combating corruption features in them.

It is worth mentioning in this regard that the United Arab Emirates legal market takes benefit from the presence of Al Tamimi & Company’s Financial Crime practice , which is the only specialized team of experts in the field of combating corruption in any regional Arab law firm.

Law and economic development

The role of law in development is obscure. Some see law as a transcendental notion of applied justice that has nothing to do with politics, morality and the distribution of wealth. Others see certain types of legal regimes as the environment that fosters and nourishes development. Others recognized the social effects of legalism, its political aspects and distributive function.

In this part we will explore these different roles attributed to law in the field of development.

i.  Formalism

The formalists believed deduction of law to be a logical science. There could only be one legally right answer to a certain disputable fact. Law is coherent and has answers to every controversy. Law is detached from politics, morality, religion and society. It thus, according to this theory, has nothing to do with economic development because legalism entails no political decisionism, and exhibits no distributive effects. It is rather the product of impeccable logical deduction from transcendental notions existing supra-society.

The role of the state is to preserve private autonomy, keeping each individual as an absolute lord within his dominion (compartment) of private rights and liberties.

Weberianism

Some saw in the abovementioned legal arrangements the pretext of economic development. 6 Law as a rational science separated from politics, religion, being man-made, universally applied, and disputes decided by general rules, 7 essential for developing science, human activities, and entrepreneurship.

Other societies which have no such legal doctrine could not develop specifically because they don’t have such laws.

The difference between this line of thought and the previous is that the “Law as pretext” acknowledges Formal legalism as the inevitable institutional infrastructure for development, whereas Formalists did not.

Two attributes of logically formal rationality legalism are highly praised. First, its relative degree of calculability, second its capacity to develop substantive provisions, principally those relating to freedom of contract necessary to the functioning of the market system. 7

ii. Realism

The Realists’ breakthrough is the critique they presented to the foundations of Formalism. Law derivation is not a science, it is not coherent, and it does not embody answers to all. Cases are decided on its facts not legal doctrine. 8   Adjudication 9   in essence is not deductive logic; it is rather judicial/political decision-making.

They also recognized the distributive function of legalism. 10 Each legal rule renders comparative advantage to the party it favours. In each situation, parties use the available legal norms to twist the counterparty’s arms in order to receive as much as possible of the outcome of the bargained deal. 11   Foucault’s Power Relations theory entertains a highly praised position in their literature in addition to Hobbes state of nature.

Chronological note on economic development

Development as a field of study became the major concern of the post-Second World War international order. It starts off with two presumed hypotheses:

• The problematization of poverty, 13   meaning that even if we don’t view securing the well-being of individuals as the function of the state, the state from a pragmatic 14   point of view has to address poverty because of its negative social effects.
• The importance of industrialization and technology.

In this coming section, I will briefly account the line of thought of the Modernization theorists, the Dependency theorists and the Neo-liberal theorists as follows. This should give the reader an idea of the current state of affairs in economic policy and where does our contemporary global practice of combating corruption come from and where it fits.

i. Modernization theorists

They are influenced by the Weberian 15   social theory.

The pillars of their line of thought are: anti-traditionalism (in both its material and psychological sense), 15   and an emphasis on the role of the state and that every man is derived from his own economic self interest. 17

According to Modernization theorists, the problem with underdevelopment is that underdeveloped societies are traditional whereas developed societies are modern. 17   They are modern in their means of production 18   and their value systems. 19

For a society to develop it has to shift from a “traditional society” to a more rational/material/modern one. It also has to transform its means of production to industrialization and technology. 20   The role of the state is crucial because it is the state that will impose that shift. They believe that once the state sets the conditions of the shift people will change on their own in pursuit of their economic best interests and hence development inevitably occurs. 21

They further suggested several approaches to introduce modernity to society. First the “Big Push” theory, 22 where the state will choose certain strategic projects and will use large scale industries in these projects to give momentum to the whole modernization process. Second the “Balanced growth” theory 24 ,  where the state will use technological/industrial means in diverse sectors to create the momentum, coupled with decreasing its exports. Third is the “Unbalanced Growth” theory, 24   where the state creates inbalance within sectors to create forward and backward linkages 25   between industries.

ii. Dependency theorists

They are influenced by Marxian ideology. 26   They have a strong connection with the national/political independence movements in the third world.

The pillar of their line of thought is the exploitation of underdeveloped societies by developed societies and the causal link between being exploited and being underdeveloped.

For them the key is to de-link underdeveloped societies from developed societies and cut the vicious circle of exploitation. Unlike the Modernists, to them underdevelopment is not the attribute of underdeveloped societies (internal), but it is rather imposed by the developed via exploitation (external) 27 and dominance. 28   Dependency is thus the economic antidote of economic imperialism. 29

A dependent society is one that depends upon other societies for its accumulation of capital (funds, new technology, machinery, equipment of the production of capital goods and enterprise expansion). 30

Their major contribution to the realm of development theory is their Import Substitution Industrialization (self reliance) policy (ISI). 31 The rationale behind the ISI ideology was to obtain self sufficiency via national industries. 32

iii. Neo-liberal theorists

They are influenced by Adam Smith’s line of thought. The pillars of their theory are the diminished role of the state, private autonomy, and the emphasis on providing the best set of rules and conditions for market forces to function with the greatest liberty possible. The supporters of this school of thought (Ayn Rand, Alan Greenspan) were influential in our contemporary social order. Rand’s theory of Objectivist epistemology is a manifestation of the abstractions of the Neo-liberal ideologies.

Neo-liberalists call for privatization of all means of production, 33   free trade, free capital flows, free direct foreign investment and free immigration and movement of labour. 34   The role of the state is restricted in providing basic services such as education, infrastructure, health care 35   and providing for best practices for the well functioning of the free market economy. 36 This stems from the idea that state intervention and public spending in the functioning of the economy is non-productive and impairs societal economic growth c   because the market itself is the most efficient mechanism for allocating its resources. 38

iv. 2nd generation reforms or the post Washington consensus:

The development field today came as a reaction to the failure of the Neo-liberal theories. Underdeveloped countries that adopted the Neo-liberal strategies remained underdeveloped.

Though Washington Consensus comes from the same economic background (free market economy) as that of the Neo-liberal movement, the concern now is with the necessary social infrastructure for a functioning/developing free market economy.

To seek unrestrained personal interests whilst sharing the very same limited resources with other human beings (who in their turn are also seeking unrestrained personal interests) is deeply conflicted. Some sort of organization/compromise must exist to sustain our existence (collective consciousness) 39 . Both social order as well as political power our products of social necessity. 40

Understanding that government was organically invented to serve a social need 41   helps us attribute, consequentially, a purpose of governance and a criteria of judging the legitimacy of its exercise; the Greatest Happiness Principle 42 .

Legislation seeks to realize the greatest possible happiness (all things considered) of the greatest number of citizens (Rule Utilitarianism-Act Utilitarianism). 43 Redistribution of wealth (taxation etc.) is only legitimate if and only if such limitation of individual rights is necessary for the welfare of society 44 (by application of the Marginal Utility Principle) and should stop when it starts to become counterproductive (Efficiency Cost). The sole reliance on human endeavours to determine the Greatest Happiness Principle 45   is almost a practical impossibility 46 . That is why we rely on the idea of Marginal Utility. The idea is that the benefit a $ 100 brings to a single unemployed mother is much greater than that it contributes to the well being of a well-to-do business person. Imagine that a person is stranded in the desert and is dying of thirst. The added value of the first drink of water you offer him/her is priceless. But then this “added value” attributed to drinks diminishes the more he/she consumes what you offer. Same concept applies to money, goods and services. The idea of Marginal Utility is conceptualized. When applied in political economy it means that governments will take from the better doing and give to the less fortunate because economic policy is all about utility (added value). And utility is maximized whenever the greatest number of people benefit from it. The challenge is to balance social well-fare policies so as not to discourage productivity by robbing people of any individual incentive to produce (Efficiency Cost).

Contemporary development theories 47 would have it that in order for a given economy to flourish there should be a pre-existing social/legal/human order. For a free market economy to function a certain legislative infrastructure should pre-exist. 48   This theory of Development holds law at the very front of its battles. 49 Law is not just a fostering environment for development; 50   it is the most important tool 51 for redistribution of power and wealth. 52 Human development is at the core of concerns of the development field today. 53   To have a developing free-market economy, they believe, it is crucial to remove all forms of constraints to human freedoms, both political and civil. 54   They are concerned with Human Rights issues. They call for democracy, independent civil societies 55   independent state institutions, 56   better law enforcement, market-friendly legislations, free trade, free transfer of funds, free transfer of labour, and more direct foreign investments. They preach and stress upon the combat of corruption, international crime and money laundry. They demand for gender equality. They emphasize on informal norms as a source of best practices. 57 They stress on the importance of formalization of all society’s assets. 58

The players of the development field today are no longer just the governments and metaphysical market forces. In addition to the government and the market forces we have organizations such as the World Bank, the International Monetary Fund, the International Financial Institutions, International and National non-governmental organizations, civil society, in addition to pressure groups and businessmen. 59   Public awareness and pro-activity is also highly praised in today’s development field. 60

Adopting GDP and/or per-capita income as signs of economic health and no longer trusted. Trusting in the invisible hand of the market and its Trickling Down Theory to achieve social as well as economic stability is no longer considered prudent.  Recognizing the drawbacks of consumption economics 61   economists now prefers to target perfect equality, transparency and stability in any given society. To measure this they usually apply, amongst other things, the Gini Coefficient 62   which measures the extent of inequality in income distribution in a given country. By measuring income inequality (not wealth inequality) it distinguishes itself from being a Marxist ideology.  Also by excluding non-cash social benefit from the calculation (welfare provision through public services is ignored) it enables governments create a sort of social balance and economic stability by restoring the inequalities in income distribution by providing subsidized goods and services and thus creating a society wherein individuals are equally empowered (no one is suffering poverty) but not all are necessarily equally wealthy.

The Development field witnessed a further step forward by the work of Amartya Sen.  63 His contribution comes as an addition to the 2nd generation reforms in view of the role of human infrastructure. Typically all the previous developmental theorists would evaluate the development of a given society by means of fiscal measures. However, Professor Sen asserts that this is not immune to critique. He illustrates that the actual end of development is not to achieve financial welfare but rather to promote human well-being.

One concludes, according to the above, that law plays a major role in development.

Research shows that a society with less income inequality (better redistribution) almost always enjoys more frequent and longer periods of economic growth (sustainable development). 64

Research also shows that a society with a higher happiness index (approval ratings) almost always enjoys more frequent and longer periods of economic growth (sustainable development). 65

It almost goes without saying that corruption is futile to any effective redistribution scheme a government is undertaking. It also goes without saying that corruption frustrates people and leave them disproving of their institutions. Both things mean that a society with corruption can not possibly enjoy leaps and bounds of sustainable economic growth and development.

Corruption is now recognized to be one of the world’s greatest challenges. It is a major hindrance to sustainable development, with a disproportionate impact on poor communities and is corrosive on the very fabric of society.

The impact on the private sector is also considerable, it impedes economic growth, distorts competition and requests serious legal and reputational risks. Corruption is also very costly for business, with the extra financial burden estimated to add 10 % or more to the costs of doing business in many parts of the world.

The rapid development of rules of corporate governance around the world is also prompting companies to focus on anti-corruption measures as part of their mechanisms to protect their reputations and the interests of their shareholders. Their internal controls are increasingly being extended to a range of ethics and integrity issues and a growing number of investment managers are looking to these controls as evidence that the companies undertake good business practice and are well managed.

The international legal fight against corruption has gained momentum in more recent times through the Organization for Economic Cooperation and Development (OECD) 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions 66   and through the entering into force of the first globally agreed instrument; the United Nations Convention Against Corruption (UNCAC) – adopted in Merida, Mexico in December 2003- on the 14th of December 2005. 67   The Arab Convention Against Corruption was signed by both the ministers of interior affairs and ministers of justice of all state members of the Arab League (save for Somalia) on the 21st of December 2010.

On the 24th of June 2004 during the United Nations Global Compact Leaders Summit it was announced that the UN Global Compact henceforth includes a tenth principle against corruption. The Principle reads as follows: “businesses should work against corruption in all its forms, including extortion and bribery.” This was adopted after extensive consultations and all participants yielded overwhelming expressions of support, sending a strong worldwide signal that the private sector shares responsibility for the challenges of eliminating corruption. It also demonstrated a new willingness in the business community to play its part in the fight against corruption.

The UNCAC is the underlying legal instrument for the 10th Principle against corruption.

The adoption of the 10th Principle commits UN Global Compact participants not only to avoid bribery, extortion and other forms of corruption but also to develop policies and concrete programs to address corruption. Companies are challenged to join governments, UN agencies and civil society to realize a more transparent global economy. 68

Legal practitioners specializing in the field of combating corruption not only work in an ever-developing exciting field but also play an important role in the upkeep of global economy.

• For further details, please see: “the costs of corruption” under feature stories, press releases – news- on the World Bank website.
• See further: www.transparency.org
• Andrew G. Berg and Jonothan D. Ostry, “Equality and efficiency”, Finance and Development, IMF, 2011.
• Maxim Mironov, “Bad corruption, good corruption and growth”, Graduate School of Business, University of Chicago, November 14th 2005.
• David M. Trubek, “Max Weber on law and the rise of Capitalism”, p. 722.
• Id. P. 724.
• David M. Trubek, “Max Weber on law and the rise of Capitalism”, p. 740.
• Joseph William Singer, “Legal Realism now”, p. 469.
• See further on adjudication: “A critique of adjudication”, Duncan Kennedy, Harvard University Press, 1999. And “Hard Cases”, Ronald Dworkin, HeinOnline, 88 Harv. L. Rev. 1057 (1974-1975).
• For further account of such effect see further: “Why the “Haves” come out ahead: Speculations on the limits of legal change”, Marc Galanter, Law and Society Review. Vol. 9, No. 1, (1974).
• David Kenedy, “The stakes of law, or Hale and Foucault”, p. 327.
• Arturo Escobar, “Encountering development: The making and unmaking of the third world”, p. 44.
• William James, “Pragmatism” Dover Publications Inc. 1995 p. 18.
• Max Weber, “Economy and society: An outline of interpretive sociology”, University of California Press, 4th ED. 1978.
• Myron Weiner, “Modernization: The dynamics of growth”, p. 3.
•  Id. P. 11.
• W. W. Rostow, “The stages of economic growth”, P.4.
• Arturo Escobar, “Encountering development: The making and unmaking of the third world”, p. 39, 40.
• Myron Weiner, “Modernization: The dynamics of growth”, p. 5.
• Myron Weiner, “Modernization: The dynamics of growth”, P. 9, 10.
• James M. Cipher and James L. Diety, “The process of economic development”, p. 137.
• Id. P. 140.
• Id. P. 143.
• Id. P. 144.
• The Material Dialect. The residues of Hegel is apparent in their line of thought.
• Henrique Cardoso and Enzo Faletto, “Dependency and development in Latin America”, p. viii.
• Id. P. xxii.
• Id. P. xxi.
• Gilbert Rist, “Self reliance: The communal past as a model for the future”, p. 123.
• Albert Hirschman, “The political economy of Import Substituting Industrialization in Latin America”, p.4.
• Jardish Bhagwati, “Economic freedom: Prosperity and social progress” (page not included).
• Kerry Rittich, “Recharacterizing restructuring law distribution and gender in market reform”, p. 29.
• Id. P. 115.
• On the topic of interdependence (mechanical and organic solidarities), please see further: “De la division du travail social” – The division of labor in society, 1893, Emile Durkheim.
• More on the topic please see: “Droit constitutionnel et institutions politiques” – Constitutional law and political institutions, 1972, Andre Hauriou.
• More on the topic of public service please see further: “l’etat, les gouvernants et les agents”- The state, governments and agents, 1903, Leon Duguit.
• More on the theory of the Greatest Happiness Principle please see further: “Utilitarianism”, 1863, John Stuart Mill.
• Please see on the Utilitarian exercise of political power/legislation: “The principles of morals and legislation”, 1781, Jeremy Bentham.
• Please see further: “L’etat, le droit objectif et la loi positive” – The state, objective rights and positivist law, Leon Duguit.
• On the transformation from the Theological to the Metaphysical to the Positivist, please see further: “The course in Positive Philosophy”, 1830-1842, Auguste Comte. See also: “A general view of Positivism”, 1844, Auguste Comte.
• On the impracticality of identifying the Greatest Happiness choice, please see further: “Darwin’s dangerous idea”, 1995, Daniel Dennett.
• Post Neo-Liberal also known as the 2nd generation reforms..
• See further: David Schneiderman, “Constitutional approaches to privatization: An inquiry into the magnitude of Neo-Liberal Constitutionalism”, (2000) 63 Law and Contemporary Problems.
• Kerry Rittich, “The future of law and development: Second generation reforms and the incorporation of the social”.
• Max Weber, Economy and Society: An outline of interpretive sociology”, University of California Press, 4th ED. 1978. See also David M. Trubek, “Max Weber on law and the rise of Capitalism”.
• Joseph William Singer, “Legal Realism now”.
• David Kenedy, “The stakes of law, or Hale and Foucault”.
• Kerry Rittich, “The future of law and development: Second generation reforms and the incorporation of the social”, p. 200.
• Amartya Sen, “Development as freedom”, Oxford University Press, 1999, p.35.
• Carlos Solinas de Gortari and Roberto Mangabeira Unger, “The market turn without Neoliberalism”, p. 17.
• Roberto Mangabeira Unger, “The really new Bretton woods”, p. 17.
• Kerry Rittich, “ The future of law and development: Second generation reforms and the incorporation of the social”, p. 220.
• Hernando de Soto, “The mystery of capital”, p. 30.
• Kerry Rittich, “The future of law and development: Second generation reforms and the incorporation of the social”, p. 218.
•  Id. P. 219.
• See further on this: E. Misham’s “The costs of economic growth”, E.F. Schumacher’s “Small is beautiful”, and Herbert Marcuse’s “One dimensional man”.
• Corrado Gini, “variabilita e mutabilita”, Jounral of the Royal Statistical Society, Vol. 76, No. 3, February 1913, PP. 326. Variability and Mutability by Corrado Gini.
• Professor of Economics at Harvard University and Noble Prize for economics award winner.
• See further: Andrew G. Berg and Jonathan D. Ostry, “Inequality and unsustainable growth: two sides of the same coin?”, IMF staff discussion note, SDN/11/08, April 8 2011 and Martin Ravallion, “A poverty-inequality Trade-off?”, Development Research Group, World Bank, WPS3579, April 2005.
• See further: Richard Layard, “Happiness: has social science a clue?”, “Lecture 2. Income and happiness: rethinking economic policy”, Lionel Robbins Memorial Lectures 2002/3, delivered on 3, 4, 5 March 2003 at the London School of Economics.
• See further: www.oecd.org/corruption/oecdantibriberyconvention.htm
• See further: www.unodc.org/onodc/en/treaties/cac/index.html
• See further: www.unglobalcompact.org/aboutthegc/thetenprinciples/principle10.html

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