Principal Agent Problems in EU Funds: A Case Study of Patronage in Hungary

Abstract

EU Funds have been linked to high levels of corruption even given substantial levels of administrative and regulatory requirements and extensive domestic monitoring. We posit that this divergence in actual outcomes and preferred policies can be attributed to the co-optation of the auditing and monitoring processes by member state governments. We outline the importance of the auditing process and flow of information to the European Commission using a delegation model and then test what occurs when this process is co-opted in Hungary. We find that the co-optation of the auditing process results in high levels of patronage/corruption.

Keywords: Political Economy, International Organizations, European Union, EU Funds, Central and Eastern Europe, Economic Aid

JEL Classification: F35