Corruption and the Provision of Public Output in a Hierarchical Asymmetric Information Relationship

30 Pages Posted: 4 Jul 2008

See all articles by Ali al-Nowaihi

Ali al-Nowaihi

University of Leicester - Department of Economics

Sanjit Dhami

University of Leicester

Multiple version iconThere are 2 versions of this paper

Date Written: August 2006

Abstract

This paper develops a principal-agent model to explore the interaction of corruption, bribery, and political oversight of production. Under full information, an honest politician achieves the first best while a dishonest politician creates shortages and bribes. Under asymmetric information, an honest politician may create more shortages relative to a dishonest one, but the latter creates more bribes. The model identifies a tradeoff between bribery and efficiency. This helps to reconcile some conflicting results on the implications of corruption for the size of the public sector. It also provides new results on the circumstances under which an improvement in the auditing technology is beneficial. The paper identifies conditions under which corruption is welfare enhancing. However, the paper also shows that under precisely these conditions private provision, even by an unregulated monopolist, would be better than public provision.

Keywords: Corruption, Regulation, Expected information rent per unit of revenue, Tradeoff between efficiency and corruption

JEL Classification: D78, D82, L51

Suggested Citation

al-Nowaihi, Ali and Dhami, Sanjit, Corruption and the Provision of Public Output in a Hierarchical Asymmetric Information Relationship (August 2006). Available at SSRN: https://ssrn.com/abstract=1154565 or http://dx.doi.org/10.2139/ssrn.1154565

Ali Al-Nowaihi

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

Sanjit Dhami (Contact Author)

University of Leicester ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

HOME PAGE: http://www2.le.ac.uk/departments/economics/people/sdhami

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
53
Abstract Views
637
rank
443,099
PlumX Metrics