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Market and network corruption: Theory and evidence

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Abstract

In this paper, we study a division between market corruption—impersonal bribery—and network corruption that operates through social connections. We provide a thorough theoretical discussion of this division, compare it with other categorizations of corruption, and also demonstrate differences between market and network corruption existing in practice. Using data from the World Economic Forum in the period from 2007 to 2016 we measure market and network corruption across about 150 countries all over the globe and show that network corruption is more related to countries’ cultural backgrounds and more harmful to investments than market corruption. Overall, our paper argues that the market-network dimension, unfairly abandoned in the literature, may be useful for better understanding of such a complex phenomenon as corruption.

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Data availability

The data that support the findings of this study are available from the corresponding author upon request.

Notes

  1. Instead of ‘parochial corruption’ we prefer the term ‘network corruption’ proposed by M. Granovetter (Granovetter, 2007) as it exactly reflects the key feature of this corruption.

  2. In this sense, market corruption is similar to ‘efficient corruption’ discussed by Aidt (2003).

  3. A prominent example is a network supervised by Vladimiro Monestesinos in Peru (McMillan and Zoido, 2004).

  4. The opposite of particularism is universalism when people treat or assess other people based on the same universal rules equally applied to all.

  5. Chinese ‘guanxi’ may be considered as an analogue of blat as it also relies on personal connections and helps to cope with the shortage. Guanxi, however, seems to be more culturally ingrained and morally justified than blat (see Ledeneva, 2008).

  6. That makes favoritism close to ‘clientelism’ (or ‘patronage’), which is the informal and mutually beneficial exchange of goods or services between people with unequal economic or social status (‘patrons’ and ‘clients’). While patrons usually provide clients with protection and resources, clients provide to patrons support and information (Boissevain, 1966). Political clientelism, for instance, assumes the exchange of goods or services for political support between politicians and citizens (Hicken, 2012) and thus it resembles network corruption as patrons abuse their office to provide informal favors to their clients.

  7. While grand market corruption is indeed less common than grand network corruption, it may exist due to intermediaries, whose role is especially important when corruption is international, i.e., when some foreign firm wants to get an informal service from domestic bureaucrats.

  8. Strong political corruption may take a form of ‘state capture’, when the whole decision-making process in the state is influenced by private agents or groups. Therefore, network corruption is much more related to state capture than market corruption.

  9. It might be the case that the level of socio-economic development that existed in the country in the past affected the historical level of corruption and, at the same time, is interrelated with the explanatory variables. As historical economic development measures are not available for a large number of countries in our sample, we employ a contemporary measure (HDI) that is correlated with the historical one (see Nunn, 2020).

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The article was prepared within the framework of the HSE University Basic Research Program.

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Authors and Affiliations

  1. Laboratory for Comparative Social Research, National Research University Higher School of Economics, Moscow, Russian Federation

    Maria Kravtsova

  2. Leuphana University, Lueneburg, Germany

    Maria Kravtsova

  3. Institute for East European Studies, Freie Universität, Berlin, Germany

    Maria Kravtsova

  4. Centre for Labour Market Studies, National Research University Higher School of Economics, Moscow, Russian Federation

    Aleksey Oshchepkov

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  1. Maria Kravtsova
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Correspondence to Maria Kravtsova.

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The article was prepared within the framework of the HSE University Basic Research Program. The authors are grateful to Toke Aidt, Anna Almakayeva, Richard Frensch, Vladimir Gimpelson, Arye Hillman, Ronald Inglehart, Tatyana Karabchuk, Julia Korosteleva, Vladimir Kozlov, Ariane Lambert-Mogilianski, Tomasz Mickievicz, Eduard Ponarin, Bo Rothstein, Francesco Sarracino, Andrei Shcherbak, Christian Swader, Eric Uslaner, Dmitriy Vorobyev, Christian Welzel, and Anna Zudina for their helpful comments on earlier versions of the paper. The paper has benefited greatly from fruitful discussions at regular LCSR-HSE workshops in Moscow and Saint Petersburg as well as at the 24th Sylvaplana Workshop on political economy in Pontresina (July, 2015), the 5th Annual IOS Conference in Regensburg (June, 2017), and the 3rd Interdisciplinary Corruption Research Forum in Gothenburg (June, 2018).

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Kravtsova, M., Oshchepkov, A. Market and network corruption: Theory and evidence. Crime Law Soc Change 81, 27–51 (2024). https://doi.org/10.1007/s10611-023-10103-z

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