Because government intervention transfers resources from one party to another, it
creates room for corruption. As corruption often undermines the purpose of the intervention,
governments will try to prevent it. They may create rents for bureaucrats, induce
a misallocation of resources, and increase the size of the bureaucracy. Since preventing
all corruption is excessively costly, second-best intervention may involve a certain
fraction of bureaucrats accepting bribes. When corruption is harder to prevent, there
may be both more bureaucrats and higher public-sector wages. Also, the optimal degree
of government intervention may be nonmonotonic in the level of income.