We show that policies that eliminate corruption can depart from socially desirable policies and this ineciency can be large enough to allow corruption to live on. Political competition between an honest (welfare maximiser) and corrupt politicians is studied. In our model the corrupt politician is at a distinct disadvantage: there is no asymmetric information, no voter bias and voters are fully rational. Yet, corruption cannot be eliminated when voters have heterogeneous preferences. Moreover, the corrupt politician can win the majority, as the honest politician tries to trade o the cost of eliminating corruption with its benets.

Industry dynamics are studied as an endogenous tournament with infinite horizon and stochastic entry. In each period, firms’ investments determine their probability of surviving into the next period. This generates a survival contest, which fuels market structure dynamics, while the evolution of market structure constantly redefines the contest. More concentrated markets endogenously generate less profit, rivals that are more difficult to outlive, and more entry. The unique steady‐state distribution exhibits ongoing turbulence, correlated exit and entry rates, and shakeouts. The model’s predictions fit empirical findings in markets where firms trade off profits for smaller risk of failure (e.g., banking).

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Certifiers verify unobserved product characteristics for buyers and thereby alleviate informational asymmetries and facilitate trade. When sellers pay for the certification, however, certifiers can be tempted to bias their opinion to favor sellers. Indeed, accounting scandals and inflated credit ratings suggest sellers may prefer to select dishonest certifiers. I test this proposition by estimating the effect of adverse quality signals on audit demand. Exploiting the natural experiment of Arthur Andersen's demise, I find that auditors with worse quality signals experience a fall in demand. This suggests that reputation effects are at work even in the presence of conflicts of interest. (JEL L15, L8, M4)

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