Choosing Agents and Monitoring Consumption: A Note on Wealth as a Corruption‐Controlling Device

Abstract

There are a large number of cases where corruption has been discovered when investigating levels of consumption that appear to be hard to justify. The informativeness of an agent's level of consumption depends on his legal income and initial level of wealth, as conspicuous consumption by wealthy agents leads to little updating of the principal's belief about their honesty. This introduces a tendency to prefer poor agents as they are easier to monitor. More generally, we describe the basic problem of choosing agents and monitoring consumption with the aim of reducing corruption, and discuss features of the practical applications.

Corruption and the Public Display of Wealth

“…It is for this reason that the initial wealth of public o cials impacts on the cost of creating incentives for them, which can make it optimal to select poor agents for public o ce. This has been shown within a principalagent framework in di Tella and Weinschelbaum (2008).…”

“…With these insights, our paper relates to results from the principal-agent approach to modeling corruption, as in di Tella and Weinschelbaum (2008), the literature on decentralization and corruption, as in Shleifer and Vishny (1993), Gatti (2002a, 2002b), Arikan (2004) or Dincer, Ellis, and Waddell (2008), and studies that view corruption as a bargaining process as evidenced in Svensson (2003) and modeled in the recent literature exploring the relation between corruption and lobbying, such as Harstad and Svensson (2011).…”

Corruption and the public display of wealth

“…With this insight, our paper adds to three strands of the literature. First, it complements results from the principal-agent approach to modeling corruption, as in di Tella and Weinschelbaum (2008).…”

“…dishonest income" (di Tella & Weinschelbaum, 2008, p. 1553. 3 Corrupt officials should, therefore, have an incentive to conceal their wealth and to refrain from engaging in conspicuous consumption.…”

“…Indeed, in a sample of Ugandan firms, Svensson (2003, p. 208) shows that bargaining power matters for corruption: firms with higher "ability to pay" and lower "refusal power" pay higher bribes "when dealing with public officials whose actions directly affect the firms' business operations." By 3 Citing Judge Gherardo Colombo (1997), di Tella and Weinschelbaum (2008, p. 1553 write that "the value of monitoring the assets and lifestyles of public officials is one of the key lessons of the Italian experience" of Mani Pulite. modeling interactions in which an official signals his corruptibility with conspicuous consumption, we relate directly to the vast signaling literature (Spence, 1973), and give a new application to the concept of conspicuous consumption as first mentioned in Veblen (1899Veblen ( /2001.…”