Explaining Corruption: A Common Agency Approach

Norbert Maier ()
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Norbert Maier: London Business Shcool Economics Department

No 413, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: In many cases, politicians and government officials are forbidden by law to accept monetary donations from interest groups or other outside parties as these monetary transfers are thought to cause social inefficiencies. The empirical literature supports this view as it finds a negative link between corruption (secret payments to government officials) and growth. However, banning monetary transfers to government officials might be discouraged as it is equivalent to restricting transactions in the market for political decision-making and inefficiencies can arise exactly because of these constraints. In this paper, we address the following question: Under which conditions should the government forbid its officials to accept monetary donations, even though enforcing such bans is costly and secret transfers still may occur? In particular, we analyze a common agency game, in which a government official acts as the common agent of the government and some third party, and identify some conditions under which banning economic interactions between the official and the third party is welfare enhancing. We also explain why secret monetary transfers to government officials can lead to economic inefficiencies.

Keywords: Corruption; Bribing; Common Agency; Exclusive Dealing; Hidden Contracting (search for similar items in EconPapers)
JEL-codes: C72 D62 D73 K42 P16 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2004-08
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