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...

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Main Author:	Prendergast, Canice
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	AGENCY PROBLEMS BENCHMARK BRIBERY BRIBES COLLUSION COMPLAINTS CONSUMERS CORRUPT PRACTICES CORRUPTION CORRUPTION CHARGES DECENTRALIZATION DISCRETION ECONOMICS GNP INDEPENDENT INVESTIGATORS INVESTIGATIONS LIQUIDITY MALFEASANCE MORAL HAZARD PENALTIES POLICY RESEARCH PUBLIC SERVICES RISK AVERSE RISK NEUTRAL
Online Access:	http://documents.worldbank.org/curated/en/2000/12/748707/investigating-corruption http://hdl.handle.net/10986/19730

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recordtype	oai_dc
spelling	okr-10986-197302021-04-23T14:03:44Z Investigating Corruption Prendergast, Canice AGENCY PROBLEMS BENCHMARK BRIBERY BRIBES COLLUSION COMPLAINTS CONSUMERS CORRUPT PRACTICES CORRUPTION CORRUPTION CHARGES DECENTRALIZATION DISCRETION ECONOMICS GNP INDEPENDENT INVESTIGATORS INVESTIGATIONS LIQUIDITY MALFEASANCE MORAL HAZARD PENALTIES POLICY RESEARCH PUBLIC SERVICES RISK AVERSE RISK NEUTRAL 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). 2014-08-26T20:51:12Z 2014-08-26T20:51:12Z 2000-12 http://documents.worldbank.org/curated/en/2000/12/748707/investigating-corruption http://hdl.handle.net/10986/19730 English en_US Policy Research Working Paper;No. 2500 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	AGENCY PROBLEMS BENCHMARK BRIBERY BRIBES COLLUSION COMPLAINTS CONSUMERS CORRUPT PRACTICES CORRUPTION CORRUPTION CHARGES DECENTRALIZATION DISCRETION ECONOMICS GNP INDEPENDENT INVESTIGATORS INVESTIGATIONS LIQUIDITY MALFEASANCE MORAL HAZARD PENALTIES POLICY RESEARCH PUBLIC SERVICES RISK AVERSE RISK NEUTRAL
spellingShingle	AGENCY PROBLEMS BENCHMARK BRIBERY BRIBES COLLUSION COMPLAINTS CONSUMERS CORRUPT PRACTICES CORRUPTION CORRUPTION CHARGES DECENTRALIZATION DISCRETION ECONOMICS GNP INDEPENDENT INVESTIGATORS INVESTIGATIONS LIQUIDITY MALFEASANCE MORAL HAZARD PENALTIES POLICY RESEARCH PUBLIC SERVICES RISK AVERSE RISK NEUTRAL Prendergast, Canice Investigating Corruption
relation	Policy Research Working Paper;No. 2500
description	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).
format	Publications & Research :: Policy Research Working Paper
author	Prendergast, Canice
author_facet	Prendergast, Canice
author_sort	Prendergast, Canice
title	Investigating Corruption
title_short	Investigating Corruption
title_full	Investigating Corruption
title_fullStr	Investigating Corruption
title_full_unstemmed	Investigating Corruption
title_sort	investigating corruption
publisher	World Bank, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2000/12/748707/investigating-corruption http://hdl.handle.net/10986/19730
_version_	1764440493322665984

Investigating Corruption

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