Social Status and Corruption

Abstract

We study the interaction between social and economic incentives in determining the level of corruption. Using social rewards as incentives for civil servants may help to reduce corruption. In our model, a decrease in corruption produces an externality that reduces the cost of hiring civil servants. In particular, it makes wage schemes which avert corruption (efficiency wages) cheaper. We show that the existence of this externality reduces the ?optimal? level of corruption in a society, the greater the power of social status, the lower the level of corruption.