Beneficial collusion in corruption control: the case of nonmonetary penalties
Baç, Mehmet and Bag, Parimal Kanti (2006) Beneficial collusion in corruption control: the case of nonmonetary penalties. Journal of development economics, 81 (2). pp. 478-499. ISSN 0304-3878
Official URL: http://dx.doi.org/10.1016/j.jdeveco.2005.06.007
We analyze a corruption model where a principal seeks to control an agent's corruption by supplementing a costless noncollusive outside detector such as the media with a collusive internal supervisor. The principal's objective is to minimize the overall costs, made up of enforcement costs and social costs of corruption. If the penalties on the corrupt agent and a failing supervisor are nonmonetary in nature and yet the two parties can engage in monetary side-transfers, the principal may stand to benefit by allowing supervisoragent collusion. This benefit may even prompt the principal to actively encourage collusion by hiring a dishonest supervisor in strict preference over an honest supervisor.
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