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Corruption and the Public Display of Wealth

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  • Simona Fabrizi

    (School of Economics and Finance, Massey University, New Zealand)

  • Steffen Lippert

    (Department of Economics, University of Otago, New Zealand)

Abstract

We build a principal-agent-client model of corruption, allowing for heterogeneity in the value of public projects relative to the cost of monitoring their execution and for uncertainty of corruptors regarding the value of a project conducted. We derive the conditions under which officials with low-value projects have an incentive to signal their projects' type, and thereby facilitate their corruption, by means of public displays of wealth. While such public displays reduce the probability with which bribes are offered to officials conducting high-value projects, they increase the probability with which these officials accept bribes sufficiently to offset any positive effect.

Suggested Citation

  • Simona Fabrizi & Steffen Lippert, 2012. "Corruption and the Public Display of Wealth," Working Papers 1202, University of Otago, Department of Economics, revised Jun 2012.
    • Handle: RePEc:otg:wpaper:1202
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    File URL: http://www.otago.ac.nz/economics/research/otago076653.pdf
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    Cited by:

    1. Rodrigues-Neto, José A., 2014. "On corruption, bribes and the exchange of favors," Economic Modelling, Elsevier, vol. 38(C), pages 152-162.

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    More about this item

    Keywords

    Corruption; Incentives; Signaling; Public Displays of Wealth;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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