Corruption: Top Down or Bottom Up?

Posted: 28 Sep 2000

See all articles by Christopher J. Waller

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis; University of Notre Dame - Department of Economics

Thierry Verdier

Paris School of Economics (PSE); Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Centre for Economic Policy Research (CEPR)

Roy Gardner

Indiana University Bloomington - Department of Economics; Indiana University Purdue University Indianapolis (IUPUI) - Department of Economics

Date Written: February 2000

Abstract

We study the degree of corruption in a hierarchical model of government. In particular, we explore the question of whether adding a layer of government simply increases the total amount of corruption or generates an organizational efficiency (via a principal-agent relationship between levels of government) that reduces the total amount of corruption. It is shown that when the after tax relative profitability of the formal sector as compared to that of the informal sector is high enough, adding a layer of government does in fact increase the total amount of corruption. On the other hand, for high enough public wages and/or an efficient monitoring technology of the bureaucratic system, 'centralization' of corruption at the top of the government hierarchy redistributes bribe income from the lower level to the upper level but actually reduces total corruption in the process.

Suggested Citation

Waller, Christopher J. and Verdier, Thierry and Gardner, Roy John, Corruption: Top Down or Bottom Up? (February 2000). Available at SSRN: https://ssrn.com/abstract=221250

Christopher J. Waller (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of St. Louis

411 Locust St
Saint Louis, MO 63011
United States

University of Notre Dame - Department of Economics ( email )

434 Flanner Hall
Notre Dame, IN 46556
United States
574-631-4963 (Phone)
574-631-9238 (Fax)

HOME PAGE: http://www.nd.edu/~cwaller/

Thierry Verdier

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014
France

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Roy John Gardner

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Indiana University Purdue University Indianapolis (IUPUI) - Department of Economics ( email )

Bloomington, IN 47405
United States
812-855-6383 (Phone)
812-855-3736 (Fax)

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