Investigating Corruption
Agency theory has had little to say about the control of bureaucratic corruption, perhaps the greatest agency problem that exists. The author considers the role of incentive contracting in reducing corruption through the use of independent investig...
| Main Author: | |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/12/748707/investigating-corruption http://hdl.handle.net/10986/19730 |
| Summary: | Agency theory has had little to say
about the control of bureaucratic corruption, perhaps the
greatest agency problem that exists. The author considers
the role of incentive contracting in reducing corruption
through the use of independent investigations-a common way
to monitor corruption. In simple settings, bureaucratic
corruption can be suppressed by rewarding and penalizing
bureaucrats, depending on the independent
investigators' findings. But the author shows that
incentive contracts can change behavior in both undesirable
and beneficial ways. He analyzes three possible harmful
behavioral responses to investigations. 1) Many
investigations are (officially) instigated by customer
complaints. Bureaucrats could become overinterested in
"keeping the customer happy," even when it is not
efficient to do so. 2) Bureaucrats often have private
information on how cases should be handled, information that
is hard for investigators to verify. The author shows that
investigations can give bureaucrats excessive incentives to
"do things by the book," offering decisions that
are more likely to be consistent with the opinions of their
superiors. 3) Bureaucrats sometimes collect bribes to
"look the other way"-that is, ignore known
transgressions. A solution to this problem might be to offer
rewards for bringing cases to light, but a bureaucrat could
then waste resources by generating "nuisance
cases" simply to receive the bonus. In each of these
cases, harmful responses to investigations and incentives
may be costly enough that it would be more efficient simply
to pay a flat wage and accept some corruption. In other
words, incentive contracts may not work so well in reducing
bureaucratic corruption, because of the variety of
dysfunctional responses that investigations may elicit. It
may be best to limit investigations to cases where the
investigator can find direct evidence of wrongdoing (for
example, cash being handed over, or bureaucrats living
beyond their means). |
|---|