Political Corruption in the Execution of Public Contracts

Olga Chiappinelli

No 1607, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

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.

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)
Pages: 36 p.
Date: 2016
New Economics Papers: this item is included in nep-sog
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https://www.diw.de/documents/publikationen/73/diw_01.c.542167.de/dp1607.pdf (application/pdf)

Related works:
Journal Article: Political corruption in the execution of public contracts (2020)
Working Paper: Political corruption in the execution of public contracts (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1607

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