Corruption in Privatization and Governance Regimes

20 Pages Posted: 26 Jan 2012 Last revised: 28 Jan 2012

See all articles by M. Cristina Molinari

M. Cristina Molinari

Ca' Foscari University of Venice, Dipartimento di Economia

Date Written: December 20, 2011

Abstract

We consider the choice to privatize the provision of a public good in a hierarchical model with three layers: a Central Government, a decentralized agency and a (private or public) manager. In a good governance regime the privatization can be devolved upon the decentralized agency while it cannot when the governance is bad. There are two types of information asymmetries: managers are privately informed of their efficiency in reducing costs (and quality) and only the decentralized agency knows the social cost of a lower grade good.

We show that corruption is always detrimental to welfare when governance is good but it could be beneficial otherwise.

Keywords: Governance regimes, Corruption, Privatization, Positive selection

JEL Classification: D73, H44, K42, L33

Suggested Citation

Molinari, M. Cristina, Corruption in Privatization and Governance Regimes (December 20, 2011). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 28/WP/2011, Available at SSRN: https://ssrn.com/abstract=1991727 or http://dx.doi.org/10.2139/ssrn.1991727

M. Cristina Molinari (Contact Author)

Ca' Foscari University of Venice, Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

HOME PAGE: http://www.unive.it/persone/cmolinar

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