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Corruption and Decentralization

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  • Emanuela Carbonara

Abstract

This paper studies the effect of decentralization on corruption in a hierarchical organization, where decentralization is intended as the delegation of control power to lower levels in a hierarchy. Decentralization causes a loss in control to the higher levels, thus curbing their incentives to monitor and detect corrupt activities. However, it also lowers the expected gains from corruption as, following decentralization, the number of individuals who are in charge of a single decision is reduced. It is then more likely that corrupt agents are called to bear the consequences of their actions. Hence, decentralization, although creating agency problems inside an organization, can help in controlling corruption.

Suggested Citation

  • Emanuela Carbonara, 1998. "Corruption and Decentralization," Working Papers 342, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:342
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    1. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-727, September.
    2. Mike Burkart & Denis Gromb & Fausto Panunzi, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 693-728.
    3. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
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