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Preemptive collusion among corruptible law enforcers

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  • Samuel, Andrew
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    Abstract

    This paper considers collusion between a supervisor and an agent within a Principal-Supervisor-Agent model. Other papers consider the possibility of collusion after the supervisor has exerted costly effort to obtain hard ("verifiable") evidence regarding the agent's actions, information which, if reported would result in the agent being fined with a certain probability. That is, collusion occurs because the supervisor may accept a bribe in exchange for hiding the information he has obtained. This paper allows the supervisor and the agent to enter into a collusive contract either before or after the supervisor has exerted effort to find verifiable information regarding the agent's actions. The former type of collusion, which occurs after the supervisor has exerted effort, entails ex-post corruption, while the latter, which occurs before the supervisor has exerted effort, entails preemptive corruption. This paper shows that although raising the supervisor's reward discourages ex-post corruption, it can simultaneously encourage preemptive corruption. Hence, raising the supervisor's reward will not always discourage collusion. This result further implies that though privatizing law enforcement can always be used to eliminate ex-post corruption, it cannot be used to eliminate preemptive corruption. Furthermore, when compared to ex-post collusion, an equilibrium without corruption is always socially preferred. However, when compared to preemptive collusion, an equilibrium without corruption may not always be socially preferred.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 71 (2009)
    Issue (Month): 2 (August)
    Pages: 441-450

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    Handle: RePEc:eee:jeborg:v:71:y:2009:i:2:p:441-450

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    Web page: http://www.elsevier.com/locate/jebo

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    Keywords: Bribery Collusion Corruption Moral hazard Crime prevention;

    References

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    1. Guriev, Sergei, 2004. "Red tape and corruption," Journal of Development Economics, Elsevier, vol. 73(2), pages 489-504, April.
    2. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
    3. Svensson, Jakob, 2000. "Who must pay bribes and how much? Evidence from a cross-section of firms," Policy Research Working Paper Series 2486, The World Bank.
    4. Ching-to Albert Ma & Ingela Alger, 1999. "Moral Hazard, Insurance and Some Collusion," FMG Discussion Papers dp318, Financial Markets Group.
    5. Thierry Verdier & Daron Acemoglu, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, vol. 90(1), pages 194-211, March.
    6. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-41, January.
    7. Abbink, Klaus, 2004. "Staff rotation as an anti-corruption policy: an experimental study," European Journal of Political Economy, Elsevier, vol. 20(4), pages 887-906, November.
    8. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
    9. Baliga, Sandeep, 1999. "Monitoring and Collusion with "Soft" Information," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(2), pages 434-40, July.
    10. Alberto Motta, 2009. "Ex-ante and Ex-post Corruption," "Marco Fanno" Working Papers 0094, Dipartimento di Scienze Economiche "Marco Fanno".
    11. A. Mitchell Polinsky & Steven Shavell, 1999. "Corruption and Optimal Law Enforcement," NBER Working Papers 6945, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Dietrich, Michael & McHardy, Jolian & Sharma, Abhijit, 2010. "Firm corruption in the presence of an auditor," MPRA Paper 24784, University Library of Munich, Germany.
    2. Mishra, Ajit & Samuel, Andrew, 2013. "Preemptive Bribery with Incomplete Information," Department of Economics Working Papers 37908, University of Bath, Department of Economics.

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