Organizational policy and corruption: the case of the government agencies

Abstract

Using the principal-agent approach, a theoretical model is developed, in which dishonest government officers lobby authorities (in the form of a corrupted political contribution) for getting some advantage over honest officers. The government agency authority should maximize the welfare of the civil service officers by distributing an economic compensation granted by a central government through the use of an institutional policy. The contribution scheme promotes a relevant truthful equilibrium. A larger institutional level favors honest people; a smaller institutional level favors dishonest people and the bribe they offer. This result has two opposite implications. If government is only an efficient authority, the optimal institutional policy will grant the same amount of economic compensation to all officers. On the other hand, if authority is assuming a moral role against corruption, then the government will be inclined to set the strictest institutional policy.