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Journal of Development Economics 81 (2006) 193– 212 /locate/econbase Corruption, competition and democracy Patrick M. Emerson * Department of Economics, University of Colorado at Denver, 1380 Lawrence Street, Suite 460, Denver, CO 80204, United States Received 1 September 2003; accepted 1 April 2005 Abstract This paper presents a model of the interaction between corrupt government officials and industrial firms to show that corruption is antithetical to competition. It is hypothesized that a government agent that controls access to a formal market has a self-interest in demanding a bribe payment that serves to limit the number of firms. This corrupt official will also be subject to a detection technology that is a function of the amount of the bribe payment and the number of firms that pay it. Under quite normal assumptions about the shape of the graph of the detection function, multiple equilibria can arise where one equilibrium is characterized by high corruption and low competition, and another is characterized by low corruption and high competition. Some suggestive empirical evidence is presented that supports the main hypothesis that competition and corruption are negatively related. D 2005 Elsevier B.V. All rights reserved. JEL classification: H30; O17; L11; D43 Keywords: Corruption; Competition; Democracy; Development 1. Introduction Corruption is generally viewed as one of the main obstacles to the growth and development of low-income countries, yet there has been relatively little theoretical * Tel.: +1 303 556 3950; fax: +1 303