Corruption and the Public Display of Wealth

University of Otago Economics Discussion Papers No. 1202

26 Pages Posted: 17 Jul 2012 Last revised: 1 Oct 2012

See all articles by Simona Fabrizi

Simona Fabrizi

Massey University

Steffen Lippert

University of Auckland - Department of Economics

Date Written: October 1, 2012

Abstract

We build a principal-agent-client model of corruption, allowing for heterogeneity in the value of public projects relative to the cost of monitoring their execution and for uncertainty of corruptors regarding the value of a project conducted. We derive the conditions under which officials with low-value projects have an incentive to signal their projects’ type, and thereby facilitate their corruption, by means of public displays of wealth. While such public displays reduce the probability with which bribes are offered to officials conducting high-value projects, they increase the probability with which these officials accept bribes sufficiently to offset any positive effect.

Keywords: Corruption, Incentives, Signaling, Public Displays of Wealth

JEL Classification: D73, D82

Suggested Citation

Fabrizi, Simona and Lippert, Steffen, Corruption and the Public Display of Wealth (October 1, 2012). University of Otago Economics Discussion Papers No. 1202. Available at SSRN: https://ssrn.com/abstract=2110340 or http://dx.doi.org/10.2139/ssrn.2110340

Simona Fabrizi

Massey University ( email )

Auckland
New Zealand
+64 9 414 0800 Ext 9335 (Phone)
+64 9 441 8177 (Fax)

HOME PAGE: http://www.massey.ac.nz/~sfabrizi

Steffen Lippert (Contact Author)

University of Auckland - Department of Economics ( email )

Auckland
New Zealand

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