Corruption as a Criminal Network

Abstract

Corruption is a global bad that comes in many forms. It is pervasive in developing countries, and persists in developed countries, where wide-ranging corruption scandals regularly shake public opinion. This study looks at these wide-ranging scandals. It explains why we sometimes see small-scale, petty corruption, and sometimes wide-ranging scandals of grand corruption.

Because grand corruption is often a collective enterprise involving large, sophisticated conspiracies, it resists our traditional tools of analysis and policy-making: methodological individualism and institutional rules. Grand corruption resists these tools because the vast conspiracies that support it manage to subvert these very institutions and avert law-enforcement, even in countries where strong institutions impose swift and harsh punishment on corrupt acts.

This work examines corruption from the perspective of organizations. Its departure point is that corruption is ``organized crime within an organization.'' It proposes and tests a theory of how corruption is organized; that is, why we observe petty or grand corruption, and how this depends on the structure of the organization where corruption occurs. This approach provides a simple, easily expandable formal-theoretic framework that unifies, sharpens, and expands upon previous work.

I find that corrupt individuals have an incentive to form vast conspiracies when the help provided by additional accomplices offsets their cost in terms of resources. Organizations affect these incentives by embedding corrupt individuals into social networks. Those networks are a double-edged sword: they provide corrupt individuals with opportunities to recruit additional accomplices among close colleagues, but also expose them to the monitoring of those colleagues. Corruption persists in developed countries in the form of grand corruption supported by large conspiracies because stronger institutions make engaging into corruption costlier. Since corruption is costlier, the protection provided by additional accomplices become more desirable. However, compensating these additional accomplices comes with higher costs that can only be borne by more profitable ventures. As such, less profitable, petty corruption disappears, leading to the survival of grand corruption alone. Testing these propositions using cross-country comparisons, a lab-in-the-field experiment conducted in Morocco, and a field study with a large Moroccan company, I find strong support for the theoretical predictions.