Corruption and the Public Display of Wealth

Lippert, Steffen; Fabrizi, Simona

Corruption and the Public Display of Wealth

Fabrizi, Simona; Lippert, Steffen

Cite this item: Fabrizi, S., & Lippert, S. (2012). Corruption and the Public Display of Wealth (Economics Discussion Papers Series No. 1202). University of Otago. Retrieved from http://hdl.handle.net/10523/2338

Permanent link to OUR Archive version: http://hdl.handle.net/10523/2338

Date: 2012-06

Publisher: University of Otago

Series: Economics Discussion Papers Series

Series number: 1202

ISSN: 1178-2293

Keywords: corruption; incentives; signaling; public displays of wealth

Research Type: Discussion Paper

Languages: English

Abstract:

We build a principal-agent-client model of corruption, allowing for heterogeneity in the value of public projects relative to the cost of monitoring their execution and for uncertainty of corruptors regarding the value of a project conducted. We derive the conditions under which officials with low-value projects have an incentive to signal their projects' type, and thereby facilitate their corruption, by means of public displays of wealth. While such public displays reduce the probability with which bribes are offered to officials conducting high-value projects, they increase the probability with which these officials accept bribes sufficiently to offset any positive effect.

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