The Answer Is Transaction Costs When Bribes Become the System: Understanding Lock-In
Aug 26, 2025
Corruption is deeply ingrained in state incentives, creating feedback loops that resist change. The concept of prebends highlights how public offices can become sources of personal income. Lock-in effects make reform nearly impossible, especially in systems where bribery is normalized. The podcast examines how bad institutions and mental models entrench corruption, using examples from Nigeria and post-Soviet Russia. It also discusses the challenge of reform, suggesting that significant shocks or brave leadership are often required to break the cycle of corruption.
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Institutions Shape Economic Outcomes
- Douglas North extends Coase: institutions matter because transaction costs are real and constant.
- Good institutions lower transaction costs and create positive feedback that fosters growth.
Feedback Locks Institutions In Place
- North shows feedback loops lock in both good and bad institutions through reinforcement.
- Bad institutions persist because elites benefit and block reforms despite evident failures.
Beliefs Create Political Inertia
- Shared mental models shape what societies accept as legitimate and resist factual correction.
- Belief systems are costly to abandon, so institutional change needs cultural shifts too.
