Political corruption in the execution of public contracts

Olga Chiappinelli

EconStor Open Access Articles and Book Chapters, 2020, vol. 179, 116-140

Abstract: This paper presents a novel theoretical framework to explain the occurrence of corruption in public procurement. It extends the agency cost-padding model by Laffont and Tirole (1992) to allow for the principal to be a partially selfish politician who can design the 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.

Keywords: Corruption in procurement; Cost-padding; Selfish politician; Endogenous auditing; Procurement contracts; Principal-agent model (search for similar items in EconPapers)
JEL-codes: D73 D82 L51 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:276231

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