Corruption and supervision costs in hierarchies

Abstract

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.