Black money and corruption have in every country. So, a model cannot eradicate these problems from the society. If the government become more conscious and people become honest then they can be reduced.

Dear All, It is true corruption, unfortunatelly, exists everywhere (e.g. Spain, Italy, etc.). The variables should be considered are the efforts to take action and to implement the adopted legal solutions. I think that no standard, nor comprehensive solution exists. However, on my own view, the penalty for this kind of crime should be more severe, taking into account that it is impossible to identify a person as  a victim. The effect of corruption are grave breaches of a community as a whole. It should be take into account the efforts of international community to find common understanding and legal tools.

please refer to:

http://www.mof.gov.bd/en/budget/pathprosperity/chapter1.pdf

you can find an idea to construct your model 

For me only one unique to eradicate the corruption in the world is firm belief in God and punishment one will get Hereafter for disobeying Our Lord. otherwise there is no model or theory which will guarantee that corruption will be eradicated, as in one way or the other we try to follow animal wits as Keynes said without caring for any other.

The best place to start with building/understanding models of corruption in developed and developing societies is James C. Scott's early work (1960s and 1970s). Scott makes it clear that what you want to discuss does not go away with "development," and in fact takes different forms. The deregulation and massive profits from the corrupt practices we see in the financial sector in the United States makes this clear.  

What this means is that corruption becomes a bit more nuanced as countries become more developed (how do you model this?).

William K. Black's book - "The Best Way to Rob a Bank is to Own One" - does a great job of explaining the nuances behind "control fraud," which is the art of ripping off institutions that you are supposed to be running on behalf of others. What he describes is legal theft. Black is an economist who was also a federal regulator during the Savings & Loan debacle in the U.S. 

A good academic article that helps with operationalizing political corruption is Lancaster and Montinola's "Comparative Political Corruption: Issues of Operationalization and Measurement", which you can find in the fall 2001 issue of Studies in Comparative International Development (Vol. 36, No.3). 

If you want an example how complex control fraud works (and helped bring down the U.S. economy) think about how the U.S. government deregulated and then allowed the financial institutions do what they wanted after the 1980s. Check out the end result in the link below.

Finally, if you want to build a model for eradicating corruption, know that this is impossible. Still, we can help reduce the proclivity towards corruption by moving away from the belief that market players are the only ones who understand markets, and should be allowed to manage and manipulate governments. The idea that free market capitalism works best is a myth. 

- Mark

http://markmartinezshow.blogspot.com/2010/08/why-were-screwed-iii-post-reform.html

Dear Damodaran,

I am not suggesting you a model to combat and eradicate corruption. But I desire to bring to you realities in our societies especially which are growing and developing. 

Actually people wish to grow disregarding common interests. May be that the lack of any system may force them to do so.

In a state of India, I observed that people pass their examinations from unfair means, travel in government railways without paying for tickets, getting jobs by paying bribes. How can such a society flourish?

It is very hard if members of a society is unconscious towards achieving common goals.

If each person will be aware, conscious and active, then there will be no corruption and no black money.

Thank you for a good question.

A necessary condition for corruption is that someone has power to make decisions for others, decisions that those others can't perfectly monitor.

Consequently, corruption involving government officials is far more common than that within private corporations (and when it does it is often in corporate purchasing departments). Corruption of government officials occurs not because all governments or officials are corrupt but because so much corruption involves them and their special place in society. Only government officials have the power to hand out so much in the form of subsidies, tax breaks, permits and regulatory exceptions.

If you need a permit from the government to undertake a peaceful activity (such as build a house, say), the government is an abstraction, but the official who grants the permit is a living human being with wants of his own. If the government official has any discretion about whether to grant the permit, you have an incentive to bribe that person and he has a reason to take a bribe. 

Hence, the best way to substantially reduce the corruption and "black money" is to remove the privileges from people granted positions of power.

Less government equals less corruption. Companies will always seek government favors. As L.V. Mises said "corruption is a regular event of interventionism" (Human Action, 3rd ed.). Therefore, the fewer rules, regulations, contracts, etc., government officials have the discretion to write, modify, or enforce, the less opportunity for corruption. The more transparent their actions and the more they have to lose, the better. Encouraging governments to employ fewer public servants with less power and more pay is a step in the right direction.

I agree with Guy Jakeman. But it should be considered that governments are necessary evils which the people have to bear. I think that public awareness can be a tool of reducing corruption with formula of minimum governance.

Yes, I developed a new tax system called TOP TAX SYSTEM to eradicate black money, fake currency and corruption. This new tax system can be easily implemented by any nation with the enlarged banking system that is based on multi-dimentional portable savings accounts . The papers and modules about this TOP TAX SYSTEM and new banking system with all working modules are available for your study on Researchgate at the following links

Enlarged banking system - 

Thesis BLACK MONEY

Article Banking Expanded to the Ultimate Level