Ex-ante and Ex-post Corruption
This paper studies the optimal compensation policy for a corruptible inspector, in charged with monitoring evasion from a taxpayer. Namely, I discuss how the optimal compensation policy varies according to the timing of collusion, which is allowed to occur either before or after inspection takes place. This paper shows that increasing the bonus rate is a better policy than increasing the penalty rate when corruption occurs after inspection. The contrary is true when the collusive agreement is established before the inspection. Implications for privatization of law enforcement are analyzed.
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