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Political corruption in the execution of public contracts

Author

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  • Chiappinelli, Olga

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.

Suggested Citation

  • Chiappinelli, Olga, 2020. "Political corruption in the execution of public contracts," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 179, pages 116-140.
    • Handle: RePEc:zbw:espost:276231
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    File URL: https://www.econstor.eu/bitstream/10419/276231/1/Chiapinelli-2020-Political-Corruption-Execution-AV.pdf
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    Citations

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    Cited by:

    1. Aamer Shahid & Stephan Litschig, 2024. "The Effect of Competition on Corruption: Evidence from Contractors’Internal Records," GRIPS Discussion Papers 24-10, National Graduate Institute for Policy Studies.

    More about this item

    Keywords

    Corruption in procurement; Cost-padding; Selfish politician; Endogenous auditing; Procurement contracts; Principal-agent model;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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