Steal If You Need. Capitulation Wages with Endogenous Monitoring
The 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.
|Date of creation:||01 Oct 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- 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.
- 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).
- Gorodnichenko, Yuriy & Sabirianova Peter, Klara, 2006. "Public Sector Pay and Corruption: Measuring Bribery from Micro Data," CEPR Discussion Papers 5585, C.E.P.R. Discussion Papers.
- Andvig, J.C. & Ove Moene, K., 1988.
"How Corruption May Corrupt,"
20/1988, Oslo University, Department of Economics.
- Lui, Francis T., 1986. "A dynamic model of corruption deterrence," Journal of Public Economics, Elsevier, vol. 31(2), pages 215-236, November.
- 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.
- 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.
- 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.
- 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.
- 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.
- Vito Tanzi, 1994. "Corruption, Governmental Activities, and Markets," IMF Working Papers 94/99, International Monetary Fund.
- Skott, Peter, 2005.
"Fairness as a source of hysteresis in employment and relative wages,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 57(3), pages 305-331, July.
- Skott, Peter, . "Fairness as a source of hysteresis in employment and relative wages," Economics Working Papers 2003-6, Department of Economics and Business Economics, Aarhus University.
- Peter Skott, 2004. "Fairness as a source of hysteresis in employment and relative wages," UMASS Amherst Economics Working Papers 2004-04, University of Massachusetts Amherst, Department of Economics.
- Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
- 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.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:37839. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.