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1607 Political Corruption in the Execution of Public Contracts Olga Chiappinelli 2016 36 S.

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Abstract:

This paper presents a novel theory of corruption in public procurement. It considers an agency setting of contract execution where the principal is a politician who can commit to a 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.

JEL-Classification:

D73;D82;L51

Keywords:

Corruption in procurement, Cost-padding, Selfish politician, Endogenous auditing, Procurement contracts, Principal-agent model