Choosing Agents and Monitoring Consumption: A Note on Wealth as a Corruption-Controlling Device
AbstractThere are a large number of cases where corruption has been discovered investigating levels of consumption that appear to be hard to justify. Yet, in the standard moral hazard model withholding of effort by the agent is not observable to the principal. We argue that this assumption has to be revised in applications that study corruption. The informativeness of an agent's level of consumption depends on his legal income and initial level of wealth, as conspicuous consumption by wealthy agents leads to little updating of the principal's belief about their honesty. This introduces a tendency to prefer poor agents as they are easier to monitor. More generally, we describe the basic problem of choosing agents and monitoring consumption with the aim of reducing corruption, and discuss features of the practical applications. We show that when there is consumption monitoring and wealth is observed, the effect of higher wealth on equilibrium bribes is ambiguous (and that the political class will exhibit lower variance in consumption than the general population). In settings where formal contracts matter, we show that monitoring consumption introduces a tendency towards low powered incentives (and more generally low wages). We also discuss the role of ability, the tax system, and the way to derive a measure of the value of illegal funds for the agent.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13163.
Date of creation: Jun 2007
Date of revision:
Note: PE POL
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- RafaelDi Tella & Federico Weinschelbaum, 2008. "Choosing agents and monitoring consumption: a note on wealth as a corruption-controlling device," Economic Journal, Royal Economic Society, vol. 118(532), pages 1552-1571, October.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-18 (All new papers)
- NEP-LAW-2007-06-18 (Law & Economics)
- NEP-REG-2007-06-18 (Regulation)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Abhijit Banerjee & Sendhil Mullainathan & Rema Hanna, 2012.
NBER Working Papers
17968, National Bureau of Economic Research, Inc.
- Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2009.
"Disclosure by Politicians,"
NBER Working Papers
14703, National Bureau of Economic Research, Inc.
- Simona Fabrizi & Steffen Lippert, 2012. "Corruption and the Public Display of Wealth," Working Papers 1202, University of Otago, Department of Economics, revised Jun 2012.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.