Proximity and inter-firm corruption: A transaction cost approach

The aim of this study is to analyse inter-firm corruption and to ascertain whether the proximity of firms engaged in corruption is a significant factor. We draw on transaction cost theory to explore two forms of corrupt exchange (negotiated vs. productive) and the role of proximity in reducing transaction costs. We obtained original data from the judgements of the Italian Court of Cassation and clustered homogeneous proximities. We then used separate binomial logistic regressions to show how the relation between transaction properties, the consequences for transaction costs and forms of corrupt exchange lead to different outcomes for each subgroup of proximities. The results show that technological and geographical proximity are beneficial to both forms of exchange, leading to a reduction in exchange costs, in much the same way as legal activities. However, unlike legal exchanges, corrupt and in particular productive exchanges do not appear to benefit from social proximity.