Since 1996, when James D. Wolfensohn, former president of the World Bank, called corruption a cancer and declared a war against it, we have seen only partial victories. The phenomenon of corruption presents exceptional resilience in contemporary societies. Yet, empirical research shows that there are countries, regions, and cities that have been able to reverse their fate and managed to bring corruption under control. By taking up this issue, my doctoral thesis attempts to determine: a) the ways in which a negative (corrupt) institutional equilibrium can be reversed; and b) in areas of widespread corruption, why some cities and their politicians decide to opt out from corruption and to limit it. In order to do this, I explore a puzzling variety of levels of corruption across and within different levels of government (national, regional and local). I aim to explain why in some cities there is corruption, collusion and bad government, while in other cities within the same institutional framework we observe non-corruption and good government. In other words, I aim to explain institution-building in societies hampered by low levels of trust and fragmented interests, and to assess if the possibilities exist for corrupt cities to alter these negative tendencies and become “good apples on bad trees". I thus focus on well-performing cities in highly corrupt regions and countries, in an attempt to understand what lies behind the variation in levels of corruption between and within regions II argue that the answer to this question lies in the cost of corruption for government, combined with the capacity of the business sector to cooperate (business association strength) and press the government to invest in administrative capacity. I contend that business associations with the strong cooperation of small- and medium-sized enterprises (SMEs) can press government, and that this, together with government stability, enables a shift from the government’s short-term horizons to long-term investment in administrative capacity. In that way, government’s potential “grabbing hand" can be limited. The methodology to probe this question is twofold: qualitative analysis using process tracing on eight cases of local government in Spain and Italy, and a historical analysis of the evolution of the economic circumstances and quality of government in these eight cases. My thesis contributes to the burgeoning literature on corruption and anti-corruption but also to the wider literature on political economy and collective action, by modeling endogenous institutional change and cooperation, even in the absence of trust and strong institutional control.