It is difficult to overstate the economic and social significance of corruption. Yet, the lack
of reliable and systematic data has kept corruption out of the research agenda of empirical
economists. This allowed speculation to include such basic issues as whether corruption is good
or bad for growth or whether corruption is determined by economic or cultural forces. Recently,
however, Paolo Mauro (1995) used cross-country subjective measures of corruption to show that corruption is negatively associated with private investment and growth. Our paper switches attention from the consequences of corruption to the causes of corruption.Lawyers often argue that the way to reduce corruption is to reform the legal system so as to increase the punishment for malfeasance.' Businessmen sometimes suggest that the problem of corruption lies in the low salaries bureaucrats receive relative to private-sector employees with comparable responsibilities. Accordingly,they argue to treat bureaucracies like private companies and raise the wages of public servants.^The economist's natural approach to corruption control is to appeal to the concept of competition as it is argued that bribes are harder to sustain where perfect competition prevails.Susan Rose-Ackerman (1978) first suggested that a way to reduce corruption was to introduce competition at the level of the official receiving bribes: when a btireaucrat dispenses a scarce benefit, the existence of competing officials to