Democracy and Corruption: Invisible Hand or Iron Fist?

The e¤ect of various features of democracy on corruption is most often assumed rather than carefully modeled. In the context of an in\u85nitely-repeated political corruption game, we show that electoral competition alone does not limit corruption because politicians can collude, share rents, and simply alternate in o ¢ ce. Only in the presence of an outside monitoring agency will political competition work as a constraint on corruption. In this sense, there is no invisible handof electoral competition that would act to reduce corruption; rather, it is an iron \u85stof monitoring institutions, 1 such as free press or grassroot anti-corruption watchdog organizations