Notes:What are the welfare implications of corruption compared to those of lobbying? This article is noticeable for clarifying the concepts of transfer costs and rent-seeking in the welfare-economics literature, and common fallacies in applying the concepts to corruption. Unsatisfied with the principal-agent framework, which assumes a benevolent principle, the author resurrects welfare-economics for studying corruption, although with modifications. In particular, he criticizes the classic conclusion that corruption is preferable to lobbying, supposedly because corruption limits directly-unproductive-profit-seeking (DUP) activities. The article shows that the classical model can be extremely useful to identify the true costs of corruption, although it has usually been used to defend corruption. Implication: Corruption is much worse than lobbying. Principal-agent theory underestimates the costs of corruption, but welfare economics can help to reveal true costs. Critique: Welfare implications in this article are “infinitely bad” and open-ended, no “upper bound”.
journal name: Public Choice