Corruption, Rule of Law, and Economic Efficiency: Selected Anecdotic Evidence of Bureaucratic Corruption from the Czech and Slovak Republics

Abstract

Can corruption improve economic efficiency? Scholars making economic policy recommendations to resolve corruption problem use several approaches, the most dominant of which are the principal-agent and rent-seeking theories. In this paper, we argue that the principal-agent theory has problems accounting for the environment in which the agents offering and accepting corruption operate, as well as explaining the importance of the agents for the survival of their environment. The rent-seeking theory, on the other hand, finds it difficult to establish socially effective legislation and ways to determine the barriers to entry that motivate agents to behave corruptly. For these reasons we present alternative model of the theory of redistribution systems and its part parallel redistribution games to synthesize both agency theory and rent-seeking and investigate if both problems can be explained and solved. Within our model we present selected quasi-experimental anecdotal evidence from the early period of transition in the Czech and Slovak Republics to support the implication that the corruption undermines economic efficiency.