Abstract In this chapter, we contextualize and discuss the issue of defining corruption,
endorsing a definition that focuses on the abuse of power. We also discuss how
limiting the scope of corruption to the public sector contradicts the understanding
that is common in the public and also in the economic science. Furthermore, we
show how policies that are based on a concept of corruption that narrowly ascribes
the phenomenon to the public sector, can reach simplistic conclusions such as that
the extent of the public sector is invariably positively correlated with the occurrence
of corruption. Such conclusions might drive policies that cannot satisfactorily
address the problem of corruption, are conceptually flawed and are not backed by
empirical analysis that enquired into the relation between the public sector and corruption.
In this context, we also scrutinize the proposition that there is an evident
trade-off between market failures and corruption. On the contrary, anticipating one
of the main conclusions of this book, we argue that corruption is one of the causes of
the persistence of market failures. The abuse of power for private gains in the case
of environmental policies is an egregious example of how public institutions fail in
dealing with issues that cannot be solved solely by market mechanisms because of
corruption. Finally, the chapter also contains a discussion of basic concepts used
throughout the book and of issues related to the measurement of corruption.