The Role of Wages and Auditing During a Crackdown on Corruption in the City of Buenos Aires

We study the prices paid for basic inputs during a crackdown on corruption in the public hospitals of the city of Buenos Aires, Argentina during 1996-97. We find a well-defined, negative effect on the measures used to capture corruption. Prices paid by hospitals for basic, homogeneous inputs fall by 15% during the first nine months of the crackdown. After this period prices rise, but they are still 10% lower than those prevailing before the crackdown. Relative to the pre-crackdown period, higher wages play no role in inducing lower input prices when audit intensity can be expected to be maximal (during the first phase of the crackdown), but have a negative and well-defined effect when audit intensity takes intermediate levels (the last phase of the crackdown). Controlling for fixed effects, we find that the wage elasticity of input prices exceeds 20%. These results are consistent with the standard model of bribes of Becker and Stigler (1974)