Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/146900 
Year of Publication: 
2016
Series/Report no.: 
DIW Discussion Papers No. 1607
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
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.
Subjects: 
Corruption in procurement
Cost-padding
Selfish politician
Endogenous auditing
Procurement contracts
Principal-agent model
JEL: 
D73
D82
L51
Document Type: 
Working Paper

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