Corruption and supervision costs in hierarchies
Journal of Comparative Economics
99 - 118
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This article studies the relation between the structure of monitoring hierarchies and corruption, that is, the expected number of bribed members. The model allows for internal corruption, a form of collusion eliminating accountability (monitoring) in the hierarchy. It is shown that the number of subordinates in a corruption-minimizing hierarchy is constrained by the prospect or internal corruption and/or monitoring costs. This constraint may generate structurally independent segments. When its members are provided with the same incentive system, the middle rank of a supervision chain displays the lowest external corruption, but there is more scope for internal corruption in the upper part than in the lower part.