Abstract

This paper views corruption as a form of contracting amenable to analysis from the viewpoint of transaction-cost economics. Concepts such as transaction, bounded rationality, opportunism, and asset specificity are shown to apply to cases of corruption. Both market and parochial corruption are hypothesized to vary in accordance with changes in the specificity of assets invested to support the corruption transaction. Evidence from a number of different studies tends to support the hypothesized relation. The implications of the transaction-cost perspective are developed for policy makers and directions for future research are suggested.