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Economics of public good provision: auditing, outsourcing, and bribery

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  • Gervan Fearon

Abstract

This study investigates a government's contracting decision to audit or outsource the provision of a public good given a potential hidden bribe and information asymmetries. The key findings are the following. First, the bribe and price of the public good are increasing in the corruptibility of the department. Second, the bribe is decreasing in the firm's bargaining power. Third, a bribery equilibrium exists when the department's corruptibility is sufficiently high given the firm's bargaining power. A bribe involves extortion or a compensatory payment depending on the department's corruptibility. Only a compensatory bribe affects the department's contracting decision.

Suggested Citation

  • Gervan Fearon, 2009. "Economics of public good provision: auditing, outsourcing, and bribery," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 997-1022, August.
    • Handle: RePEc:cje:issued:v:42:y:2009:i:3:p:997-1022
    DOI: 10.1111/j.1540-5982.2009.01536.x
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    Cited by:

    1. Clelia Fiondella & Luca Ferri & Marco Maffei & Rosanna Span?, 2019. "The disclosure in the Anti-Corruption Plans. Formal vs substantive attempts in the Italian Regional Governments," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2019(3), pages 147-164.
    2. Saibal Kar & Srijan Banerjee, 2018. "Tax Evasion and Provision of Public Goods: Implications for Wage and Employment," Studies in Microeconomics, , vol. 6(1-2), pages 84-99, June.
    3. Neu, Dean & Everett, Jeff & Rahaman, Abu Shiraz, 2015. "Preventing corruption within government procurement: Constructing the disciplined and ethical subject," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 28(C), pages 49-61.
    4. Rosanna Spanò & Luca Ferri & Clelia Fiondella & Marco Maffei, 2017. "Accountability and Reporting in the Fight against Corruption: Preliminary Evidences from the Italian Setting," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(4), pages 1-1, March.

    More about this item

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H4 - Public Economics - - Publicly Provided Goods
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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