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Institutions, Contracts and Organizations

Institutions, Contracts and Organizations

Perspectives from New Institutional Economics

Edited by Claude Ménard

This outstanding book presents new original contributions from some of the world’s leading economists including Ronald Coase, Douglass C. North, Masahiko Aoki, Oliver E. Williamson and Harold Demsetz. It demonstrates the extent and depth of the New Institutional Economics research programme which is having a worldwide impact on the economics profession.

Chapter 15: Institutionalized corruption and the kleptocratic state

Joshua Charap and Christian Harm

Subjects: economics and finance, industrial organisation, institutional economics


Joshua Charap and Christian Harm* INTRODUCTION Corruption and governance are increasingly popular topics for analysis. In contrast to the mainstream discussion of corruption,1 we propose that patterns of corruption must be analysed in their political context because corruption is endogenous to the political process. Drawing from the literature on the economics of conflict and appropriation, the economics of organized crime, and the political economy of dictatorships, we derive the endogenous genesis of the ‘kleptocratic state’ from a state of pure anarchy.2 Warlords and their collaborators emerge as successful adaptations to the game of anarchy and they seek to usurp one another in a quest for hegemonic rule. In our view, however, the internal organization of predatory teams is inadequately explained in the literature, which affects the understanding of the optimal span of control of dictatorship. As a partial answer to the problem of internal cohesion of predatory teams, we offer the explanation that corrupt offices are created to satisfy a leader’s desire to foster loyalty through patronage. The predatory hierarchy, established in order to extract rents from the economy, is based on a system of low civil service wages, which mandate corrupt activity and serve to reinforce the system of rent extraction to the ultimate benefit of the ruler. Thus, we suggest that corruption is endogenous to the political regime and predatory activity on the part of low-level bureaucrats must be judged in its political context since different political regimes generate different patterns of corruption. Our...

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