Corruption and the Provision of Public Output in a Hierarchical Asymmetric Information Relationship
AbstractThis paper develops a principal-agent model to explore the interaction of corruption, bribery, and political oversight of production. Under full information, an honest politician achieves the first best while a dishonest politician creates shortages and bribes. Under asymmetric information, an honest politician may create more shortages relative to a dishonest one, but the latter creates more bribes. The model identifies a tradeoff between bribery and efficiency. This helps to reconcile some conflicting results on the implications of corruption for the size of the public sector. It also provides new results on the circumstances under which an improvement in the auditing technology is beneficial. The paper identifies conditions under which corruption is welfare enhancing. However, the paper also shows that under precisely these conditions private provision, even by an unregulated monopolist, would be better than public provision. Copyright 2007 Blackwell Publishing, Inc..
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Bibliographic InfoArticle provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.
Volume (Year): 9 (2007)
Issue (Month): 4 (08)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1097-3923
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Other versions of this item:
- Sanjit Dhami & Ali al-Nowaihi, 2005. "Corruption And The Provision Of Public Output In A Hierarchical Asymmetric Information Relationship," Discussion Papers in Economics 05/16, Department of Economics, University of Leicester.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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- Maria Cristina Molinari, 2011. "Corruption in Privatization and Governance Regimes," Working Papers 201_28, Department of Economics, University of Venice "Ca' Foscari".
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