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Corruption has its adverse effects not just on static efficiency but also on investment and growth. This chapter discusses the reasons for the persistence of corruption that have to do with frequency-dependent equilibria or intertemporal externalities. There are many cases where corruption is mutually beneficial between the official and his client, so neither the briber nor the bribee has an incentive to report or protest, for example, when a customs officer lets contraband through, or a tax auditor purposely overlooks a case of tax evasion, and so on. The idea of multiple equilibria in the incidence of corruption is salient in some of the recent economic theorists' explanations. There is a strand in the corruption literature, contributed both by economists and non-economists, suggesting that, in the context of pervasive and cumbersome regulations in developing countries, corruption may actually improve efficiency and help growth.
Pranab Bardhan (Wed,) studied this question.