Choosing Agents and Monitoring Consumption: A Note on Wealth as a Corruption-Controlling Device
Rafael Di Tella
Harvard Business School - Business, Government and the International Economy Unit; National Bureau of Economic Research (NBER)
University of San Andres
The Economic Journal, Vol. 118, Issue 532, pp. 1552-1571, October 2008
There are a large number of cases where corruption has been discovered when investigating levels of consumption that appear to be hard to justify. The informativeness of an agent's level of consumption depends on his legal income and initial level of wealth, as conspicuous consumption by wealthy agents leads to little updating of the principal's belief about their honesty. This introduces a tendency to prefer poor agents as they are easier to monitor. More generally, we describe the basic problem of choosing agents and monitoring consumption with the aim of reducing corruption, and discuss features of the practical applications.
Number of Pages in PDF File: 20
Date posted: September 19, 2008