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Corruption in Privatization and Governance Regimes

  • Maria Cristina Molinari

    ()

    (Department of Economics, University Of Venice Cà Foscari)

We consider the choice to privatize the provision of a public good in a hierarchical model with three layers: a Central Government, a decentralized agency and a (private or public) manager. In a good governance regime the privatization can be devolved upon the decentralized agency while it cannot when the governance is bad. There are two types of information asymmetries: managers are privately informed of their efficiency in reducing costs (and quality) and only the decentralized agency knows the social cost of a lower grade good. We show that corruption is always detrimental to welfare when governance is good but it could be beneficial otherwise.

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File URL: http://www.unive.it/media/allegato/DIP/Economia/Working_papers/Working_papers_2011/WP_DSE_molinari_28_11.pdf
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Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2011_28.

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Length: num pagine 18
Date of creation: 2011
Date of revision:
Handle: RePEc:ven:wpaper:2011_28
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