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  This module is a resource for lecturers  

 

Theories that explain corruption

 

As corruption is a complex phenomenon, no one theory explains it all. This part of the Module reviews the main theories used to explain why corruption occurs.

Principal-agent theory

The desire for personal gain is often understood as the primary cause of public sector corruption, but this is an over-simplification of the complex relationships between individuals and the State. There are several theories that help to deconstruct these relationships. Two of the most popular theories on corruption in the economic literature are the principal-agent model and the related agency problem (see, e.g., Klitgaard, 1988; Shleifer and Vishny, 1993). The principal-agent model assumes that agents (public officials) serve to protect the interests of the principal (whether the public, parliament, or supervisors). However, in reality, the interests of the agents often diverge from the interests of the principal, and while the former can prescribe the pay-off rules in the principal-agent relationship, there is informational asymmetry to the advantage of the agent, which could be used by him or her for personal benefit (Groenendijk, 1997). In this context, an agency problem occurs where the agents choose to engage in a corrupt transaction, in furtherance of their own interests and to the detriment of the interests of the principal. To limit the agency problem, the principal can design incentives and schemes (e.g. monitoring, bonding and oversight) to curb the agent's potential abuses (for a further discussion on how the principal-agent theory is applied in practice, see Module 13 of the E4J University Module Series on Anti-Corruption).

Collective action theory

For decades, the economic literature referred to the principal-agent model to explain corruption (Groenendijk, 1997). More recently, collective action theory emerged as an alternative explanation for why systemic corruption persists despite laws making it illegal, and why corruption resists various other anti-corruption efforts in some countries. The collective action theory goes beyond traditional principal-agent relationships and emphasizes the importance of factors such as trust and how individuals perceive the behaviour of others. Persson, Rothstein and Teorell (2013) regard systemic corruption as a collective problem, because people rationalize their own behaviour based on the perceptions of what others will do in the same situation. When corruption becomes a social norm, everyone starts seeing it simply as the way to get things done. People are aware of the negative consequences of widespread corruption, but they engage in corrupt actions as they believe that "it doesn't make sense to be the only honest person in a corrupt system" (Marquette and Peiffer, 2015). In such an environment, anti-corruption measures based on the principal-agent model will not be effective, as there are no "principled principals" who will enforce anti-corruption norms (Klitgaard, 2004; Persson, Rothstein and Teorell, 2013). An institutional or organizational culture of corruption leads to the normalization of corrupt practices at a societal as well as individual level, and to impunity for violating or ignoring formal anti-corruption rules (Appolloni and Nshombo, 2014). To combat corruption in these circumstances, there is a need for collective and coordinated approaches, such as reform coalitions or proactive alliances of like-minded organizations. These approaches are often called "collective action" initiatives, and are are discussed in further detail in Module 5 of the E4J University Module Series on Anti-Corruption.

Institutional theory

Institutional theory - also known as institutionalism - uses country and government institutional characteristics, such as pre-existing rule of law, well-defined anti-corruption norms, and independent anti-corruption institutions with enforcement powers, to explain corruption in the public sector. Institutional theory "examines the processes and mechanisms by which structures, schemas, rules, and routines become established as authoritative guidelines for social behaviour" (Scott, 2004). In relation to understanding corruption, institutional theory brings in the social context and provides a taxonomy for understanding how corruption might become entrenched in organizations, in institutions and in society, despite the existence of an anti-corruption framework (Luo, 2005). Institutional theory considers that corruption is influenced the character, design and transparency of the political system and its institutions. At the same time, it acknowledges that the relationship between corruption, institutions, political systems, culture and gender is highly complex (Debski and others, 2018; Stensöta, Wängnerud and Svensson, 2015). A fair amount of research has focused on the relationship between political institutions on the one hand, and, on the other hand, the prevalence and levels of corruption. This research is discussed in detail in Groop (2013). A summary of this discussion is provided in Module 3 of the E4J University Module Series on Anti-Corruption.

Related to this is the "institutionalist" view of political corruption that was developed by Thompson (1995) and Lessig (2018). This view stresses that while corruption can occur on an individual level, it can also be institutional in nature in cases where institutions are structured in a way that makes them deviate from their original purpose. A paradigmatic example is private financing of political campaigns in the United States, as explained by Ceva and Ferretti (2017, p. 3):

In the USA, candidates that run for elections are allowed to receive financial support from such a diverse set of private sources as ordinary citizens, private corporations, and either cultural or religious groups. It may thus happen that, once elected, a politician who has received financial support from, say, a private company pushes forward some regulation that aims at reducing the fiscal pressure in the area where this company operates.

In this example, the combination of unlimited financial support and lack of transparency is an issue because even if candidates do not act illegally on the individual level, it is clear that the practice of private donation is susceptible to political corruption. It can thus be argued that the institution of democratic elections is corrupt since "[t]he institutionalised practice of receiving private funds for electoral campaigns makes the institution of democratic elections depend on … the arbitrary influence of financial powers" (Ceva and Ferretti, 2017, p. 3). The institutionalist approach accordingly suggests that in the study of corruption we should focus on the "bad barrel" (distorting institutional practices and mechanisms) rather than concentrating on the "bad apples" (individual misbehaviour). This is also discussed in the context of Module 1 of the E4J University Module Series on Anti-Corruption.

Game theory

Another theory that explains the prevalence of public sector corruption is the game theory. This theory borrows from economic literature and seeks to provide rationales for corrupt decisions by public officials. In particular, Macrae (1982) suggests that corruption is part of a rational calculus and an integral and often deeply rooted method by which people take decisions. In this context, individuals face a " prisoner's dilemma", which "illustrates a conflict between individual and group rationality" (Kuhn, 2019). The individual fears a disadvantage if she refuses to engage in corrupt practices while other individuals do not refuse to do so in the same situation. As a result all individuals obtain some sort of benefit which, however, is always less than the benefit that each of them would have obtained if they refused to engage in corrupt practices. This is illustrated, for example, in the area of public procurement, where participants in corruption include private sector actors that are unsure of the actions of others. The fear of being outdone by competitors acting illegally or unethically thus motivates otherwise ethical companies to engage in procurement corruption.It should also be noted that various situational and psychological factors could play a role in fostering unethical behaviour, sometimes despite an individual's best intentions to act ethically. These factors are discussed in depth in Module 6 and Module 8 of the E4J University Module Series on Integrity and Ethics.

 
Next: Corruption in public procurement
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