Political corruption in the execution of public contracts

Olga Chiappinelli

This paper presents a novel theory of corruption in public procurement. It considers an agency setting of contract execution where the principal is a politician who can commit to a contract auditing policy. It is found that a benevolent politician, by choosing a sufficiently strict auditing, deters the contracting firm from padding costs, conversely, a selfish politician chooses a relatively lax auditing in order to create an incentive for cost-padding, and engages in corruption with the firm in case of detection. If the cost of auditing is high enough, even a benevolent politician might prefer to allow cost-padding.

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Year of publication:	2016
Authors:	Chiappinelli, Olga
Publisher:	Berlin : DIW Berlin, German Institute for Economic Research
Subject:	Corruption in procurement \| Cost-padding \| Selfish politician \| Endogenous auditing \| Procurement contracts \| Principal-agent model \| Korruption \| Corruption \| Öffentlicher Auftrag \| Public contract \| Prinzipal-Agent-Theorie \| Agency theory \| Vertrag \| Contract \| Beschaffung \| Procurement \| Vertragstheorie \| Contract theory \| Politiker \| Politicians