Canals, climate, and corruption: The provisioning of public infrastructure under uncertainty

Abstract

AbstractWe develop a two‐stage model to study the strategic interaction between a politician (the principal) and a bureaucrat (the agent) over the level of infrastructure provision with uncertainty about possible weather shocks. The bureaucrat chooses how much effort to contribute to infrastructure maintenance and the politician offers either a lump‐sum wage (non‐corrupt) contract or proportional bribe (corrupt) contract to induce effort. The degree of uncertainty about weather shocks, the size of the fixed wage, and the level of external monitoring to detect corruption all interact to affect (a) the politician's choice of contract and (b) whether this choice improves infrastructure outcomes. Our results suggest that curbing corruption is most likely to yield improvements in infrastructure provision when climate uncertainty is low and when bureaucratic wages are relatively high. If climate uncertainty is high, increasing monitoring has an unambiguous negative effect on infrastructure provision. Previous literature has focused either on public goods provision but not corruption or on bribery in a regulatory context that lacks public goods provision. We extend both literatures by analyzing how bribes between government officials affect a principal's ability to more effectively incentivize public goods provision by her agent.