Corruption and Reputation
| DOI | http://doi.org/10.1111/1467-9485.00197 |
| Published date | 01 August 2001 |
| Date | 01 August 2001 |
| Author | Svetlana Andrianova |
{Journals}sjpe/48_3/c158/makeup/c158.3d
CORRUPTION AND REPUTATION
Svetlana Andrianova*
ABSTRACT
This paper examines corruption in a random matching game where past actions are
imperfectly observed and players have the option to continue trading with their
existing partners. It shows that the effect of individual reputations for honesty may
outweigh the effect of a bad collective reputation depending on the expected value
of a continued match relative to the corruption gain.
II
NTRODUCTION
In a random matching model of collective reputations, Tirole (1996)
demonstrates that corruption may persist over time due to imperfect
observability of traders' past conduct.1If inherently honest buyers believe that
most sellers were corrupt in the past, they would choose to purchase a product
which is least sensitive to corrupt behaviour, thereby further reducing the
incentive of sellers who have not yet cheated to be honest. Thus bad collective
reputation may override good individual conduct and lead to a permanently
high level of corruption. This striking result is derived under the assumption of
limited information flows in the community where trading partners never meet
twice and where past individual misconduct may become known with some
positive probability prior to trade. Importantly, since players are matched afresh
at the beginning of each trading round, individual reputations are captured
through the possible discovery of a seller's past corrupt behaviour. While the
focus on collective reputations justifies the limited role that individual
reputations play in the model, in reality this role is likely to be more important,
since satisfactory partnerships may be sustained for a long time with partners
themselves deciding whether cooperation proved fruitful and should be
continued in the future. Marriages, life-long friendships, successful business
partnerships and family doctors are good examples of voluntarily formed
Scottish Journal of Political Economy,Vol.48,No.3,August2001
#Scottish Economic Society 2001,Publ ishedby Blackwell Publishers Ltd, 108 Cowley Road, Oxford OX4 1JF, UK and
350 Main Street, Malden, MA 02148, USA
245
*Loughborough University
1In this context, corruption is synonymous with cheating by a contractual party, and hence
refers to private corruption. For an economic analysis of public corruptionÐdefined as `abuse
of public office for private gain'Ð see the classic works by Rose-Ackerman (1978) and
Klitgaard (1988), and also Bardhan (1997) for a recent overview of this rapidly growing
literature.
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