Corrupt arrangements are characterized by a high risk of opportunism: double-dealing, whistle-blowing and extortion are significant uncertainties for participants in corrupt transactions. This paper demonstrates how legislators may use an asymmetric design of (criminal) sanctions and leniency...

Corruption at central banks induces distorted policies by generating a tendency to increase inflation. An inflation bias arises because the public distrusts central bank's benevolence, not only its commitments. We show that distrust among the public, measured by a high level of expected...