IV. Factors Behind Differential - 5

In an overlapping generations framework
with dynamic complementarity between
past and future reputation Jean
Tirole (1996) has argued that the persistence
of corruption in a society may
be explained partly by the bad collective
reputation of previous generations:
younger generations may inherit the
reputation of their elders with the consequence
that they may have no incentive
to be honest themselves. This
means, if for some temporary reasons
(say, due to a war or some other disruption
in the economic system) corruption
in an economy increases, it has lasting
effects: collective reputation once shattered
is difficult to rebuild. Similarly, a
one-shot reduction in corruption
(through, say, an anti-corruption campaign)
may have no lasting effect: it
may take a minimum number of periods
without corruption to return to a path
leading to the low-corruption steady
state.
We have discussed in this section the
reasons for the persistence of corruption
that have to do with frequency-dependent
equilibria or intertemporal externalities.
Let us end it by referring to
a simpler reason for persistence in the
case of some types of corruption. There
are many cases where corruption is mutually
beneficial between the official
and his client, so neither the briber nor
the bribee has an incentive to report or
protest, for example, when a customs
officer lets contraband through, or a tax
auditor purposely overlooks a case of
tax evasion, and so on. Shleifer and
Vishny (1993) call it corruption with
theft (a better name may be collusive
corruption), to distinguish it from cases
where the official does not hide the
transaction in which the client pays the
requisite price, fee, or fine to the government,
but only charges something
extra for himself, what Shleifer and
Vishny call corruption without theft.
The former type is more insidious, difficult
to detect and therefore more persistent.
One should add that this type
also includes many cases of official relaxation
of quality control standards, in
inspection of safety in construction of
buildings and bridges or in supplies of
food and drugs, in pollution control,
etc.