Collusion and Renegotiation in Hierarchies: A Case of Beneficial Corruption
AbstractCorruption opportunities arise when a principal delegates enforcement or audit authority to a supervisor. The supervisor may then strike a deal with the agent she is supposed to monitor and conceal important information from the principal. Corruption imposes a constraint on governance and appears therefore to be harmful for the principal. We show that this need not be the case. In our model, the prospect of corruption can make the principal better off. The reason is that the collusion possibility generates dynamic effects which, in cases where only limited intertemporal commitments can be made, may be beneficial for the principal.
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Bibliographic InfoPaper provided by Department of Economics, University of Bergen in its series Norway; Department of Economics, University of Bergen with number 179.
Length: 25 pages
Date of creation: 1998
Date of revision:
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Postal: Department of Economics, University of Bergen Fosswinckels Gate 6. N-5007 Bergen, Norway
Web page: http://www.uib.no/econ/
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CORRUPTION ; INFORMATION;
Other versions of this item:
- Olsen, Trond E & Torsvik, Gaute, 1998. "Collusion and Renegotiation in Hierarchies: A Case of Beneficial Corruption," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 413-38, May.
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
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