Social Capital and Corruption: Theory, and Evidence from India∗

Potential bribe-payers often face a collective action problem: they would all be better off if they could enforce an agreement not to pay bribes. This paper uses a linkedgames model to show how social capital, viewed as trust generated through repeated interactions in other games, can help them to overcome this collective action problem and enforce agreements (or norms) against bribery. We also carry out an empirical test which explores variations in the frequency with which officials are transferred between posts in Indian states. Consistent with our model, we find that social capital in Indian states is positively correlated with transfer frequency. We argue that plausible alternative theories would have predicted a negative relationship.