Corruption and the Public Display of Wealth
University of Otago Economics Discussion Papers No. 1202
26 Pages Posted: 17 Jul 2012 Last revised: 1 Oct 2012
Date Written: October 1, 2012
We build a principal-agent-client model of corruption, allowing for heterogeneity in the value of public projects relative to the cost of monitoring their execution and for uncertainty of corruptors regarding the value of a project conducted. We derive the conditions under which officials with low-value projects have an incentive to signal their projects’ type, and thereby facilitate their corruption, by means of public displays of wealth. While such public displays reduce the probability with which bribes are offered to officials conducting high-value projects, they increase the probability with which these officials accept bribes sufficiently to offset any positive effect.
Keywords: Corruption, Incentives, Signaling, Public Displays of Wealth
JEL Classification: D73, D82
Suggested Citation: Suggested Citation