The Economics of Corruption: A Study of its rationale and measures

Our study aims at considering two aspects of the problem of corruption that are its rationale and measures. The starting point is the presentation of a concise background on the topic as Chapter I highlight definitions, causes, main effects, cate-gorisation and the measures of corruption. From the causes of corruption it is the case that our understanding of this prob-lem is limited by the assumption of the mechanism through which those causes come together to affect corruption. The way in which incentives predispose individuals to side with corruption has only been assumed in the literature. Hence, Chapter II will look into the rationale of corrupt behaviour and its implications. Using a modify version of a model developed by Macrae (1982), we build a cor-ruption game illustrating a simple game of bureaucratic corruption between farmers and government officials. We argue that not only corruption is the rationale calculus of agents maximising their income but also that the rationale following which we reach the corruption equilibrium or the honesty one could explain the pervasiveness of ei-ther corruption or honesty. At last Chapter III focuses on the measures of corruption. Perception indexes are widely used as the result of their prevalence and the lack of better alternatives. However, many studies show a disparity between the perception of corruption and its actual incidence (see Mocan 2008, Olken 2009, Donchev and Ujhelyi 2011, Fisman and Miguel 2007). We propose an alternative by putting together an index of the incidence of corruption accounting for its perception using data from the incidence of corruption as reported by the national agency responsible for the fight against corruption in Kenya. Our study suggests that not only our index account better for yearly change in the prevalence of corruption but perception indexes can be used to account for the inabil-ity to detect some form of corruption.