Collusion and Renegotiation in Hierarchies: A Case of Beneficial Corruption

Trond Olsen and Gaute Torsvik

Norway; Department of Economics, University of Bergen from Department of Economics, University of Bergen

Abstract: Corruption opportunities arise when a principal delegates enforcement or audit authority to a supervisor. The supervisor may then strike a deal with the agent she is supposed to monitor and conceal important information from the principal. Corruption imposes a constraint on governance and appears therefore to be harmful for the principal. We show that this need not be the case. In our model, the prospect of corruption can make the principal better off. The reason is that the collusion possibility generates dynamic effects which, in cases where only limited intertemporal commitments can be made, may be beneficial for the principal.

Keywords: CORRUPTION; INFORMATION (search for similar items in EconPapers)
JEL-codes: K42 L40 (search for similar items in EconPapers)
Pages: 25 pages
Date: 1998
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Citations: View citations in EconPapers (26)

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Journal Article: Collusion and Renegotiation in Hierarchies: A Case of Beneficial Corruption (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:bereco:179

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