Political corruption in the execution of public contracts

Chiappinelli, Olga (2016): Political corruption in the execution of public contracts.

Abstract

This paper presents a novel theory of corruption in public procurement. It considers an agency setting of contract execution where the principal is a politician who can commit to a contract auditing policy. It is found that a benevolent politician, by choosing a sufficiently strict auditing, deters the contracting firm from padding costs; conversely, a selfish politician chooses a relatively lax auditing in order to create an incentive for cost-padding, and engages in corruption with the firm in case of detection. If the cost of auditing is high enough, even a benevolent politician might prefer to allow cost-padding.

• Item Type: MPRA Paper
• Language: English
• Keywords: Corruption in procurement; Cost-padding; Selfish politician; Endogenous auditing; Procurement contracts; Principal-agent model.
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation

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