Steal If You Need. Capitulation Wages with Endogenous Monitoring
AbstractThe importance of high salaries to circumvent bureaucratic corruption has been widely recognized in the policy debate. Yet, there appears to be much reluctance when it comes to the implementation. In this paper, we argue that deterring corruption through wage incentives may become prohibitively expensive that the government finds it optimal to accept higher net revenues at the expense of honesty. Deviating from the existing literature, where monitoring is exogenous, which curtails government's anti-corruption policy options; we set an endogenous monitoring technology that allows us to capture the dual role of auditing, as a complement with and as a substitute for wage incentives to deter bribery. Furthermore, besides the efficiency wage and the outside option, the government could pay a wage below the outside option, which attracts only dishonest agents to public office - capitulation wage. We find that when it is costly to monitor tax inspectors, the government is better-off offering capitulation wages and accepting corruption. When it is optimal to deter bribery, the government can do it either through efficiency wages or monitoring. The role of efficiency wages decreases in societies with higher level of dishonesty.
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 University Library of Munich, Germany in its series MPRA Paper with number 37839.
Date of creation: 01 Oct 2009
Date of revision:
Corruption; Endogenous monitoring; Capitulation wage; Efficiency wage; Carrot & Stick;
Find related papers by JEL classification:
- D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vito Tanzi, 1994. "Corruption, Governmental Activities, and Markets," IMF Working Papers 94/99, International Monetary Fund.
- Gorodnichenko, Yuriy & Sabirianova, Klara, 2006.
"Public Sector Pay and Corruption: Measuring Bribery from Micro Data,"
CEPR Discussion Papers
5585, C.E.P.R. Discussion Papers.
- Gorodnichenko, Yuriy & Sabirianova Peter, Klara, 2007. "Public sector pay and corruption: Measuring bribery from micro data," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 963-991, June.
- Gorodnichenko, Yuriy & Peter, Klara Sabirianova, 2006. "Public Sector Pay and Corruption: Measuring Bribery from Micro Data," IZA Discussion Papers 1987, Institute for the Study of Labor (IZA).
- Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Bureaucratic corruption and the rate of temptation: do wages in the civil service affect corruption, and by how much?," Journal of Development Economics, Elsevier, vol. 65(2), pages 307-331, August.
- James E. Alt & David Dreyer Lassen, 2010. "Enforcement and Public Corruption: Evidence from US States," EPRU Working Paper Series 2010-08, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Rauch, James E & Evans, Peter B., 1999.
"Bureaucratic Structure and Bureaucratic Performance in Less Developed Countries,"
University of California at San Diego, Economics Working Paper Series
qt0sb0w38d, Department of Economics, UC San Diego.
- Rauch, James E. & Evans, Peter B., 2000. "Bureaucratic structure and bureaucratic performance in less developed countries," Journal of Public Economics, Elsevier, vol. 75(1), pages 49-71, January.
- 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.
- Goel, Rajeev K & Nelson, Michael A, 1998. " Corruption and Government Size: A Disaggregated Analysis," Public Choice, Springer, vol. 97(1-2), pages 107-20, October.
- Lui, Francis T., 1986. "A dynamic model of corruption deterrence," Journal of Public Economics, Elsevier, vol. 31(2), pages 215-236, November.
- Di Tella, Rafael & Schargrodsky, Ernesto, 2003. "The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires," Journal of Law and Economics, University of Chicago Press, vol. 46(1), pages 269-92, April.
- Nadeem Ul Haque & Ratna Sahay, 1996. "Do Government Wage Cuts Close Budget Deficits? Costs of Corruption," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 754-778, December.
- Andvig, Jens Chr. & Moene, Karl Ove, 1990.
"How corruption may corrupt,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 13(1), pages 63-76, January.
- Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.