Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/276231 
Year of Publication: 
2020
Citation: 
[Journal:] Journal of Economic Behavior & Organization [ISSN:] 1879-1751 [Volume:] 179 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2020 [Pages:] 116-140
Publisher: 
Elsevier, Amsterdam
Abstract: 
This paper presents a novel theoretical framework to explain the occurrence of corruption in public procurement. It extends the agency cost-padding model by Laffont and Tirole (1992) to allow for the principal to be a partially selfish politician who can design the 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.
Subjects: 
Corruption in procurement
Cost-padding
Selfish politician
Endogenous auditing
Procurement contracts
Principal-agent model
JEL: 
D73
D82
L51
Published Version’s DOI: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)

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