Corruption in Privatization and Governance Regimes

M. Cristina Molinari

No 201_28, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: 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.

Keywords: Governance regimes; Corruption; Privatization; Positive selection. (search for similar items in EconPapers)
JEL-codes: D73 H44 K42 L33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta
Date: 2011
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