Saturday, December 01, 2012

Economics of Corruption

I was shocked recently to hear from some of friends with graduate degrees in computer science and engineering that some form of corruption is OK and necessary because running a government is a complex operation and greasing the palms of politicians and government employees makes government work faster.

Corruption or any use of public power for private gain has large negative implications beyond the amounts paid as bribes. I will highlight a couple here and point to few sources for details.

1) Corruption disrupts free markets and allows inefficient companies to thrive by shielding it from competition.

2) Corruption diverts government funds to people who are able to pay kickbacks and bribes instead of investing in most productive sectors like education, infrastructure and health services

3) Corruption creates moral hazards for companies and people when "buying" favorable tax structures and environmental regulation becomes cheaper than building an efficient and productive company.

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