Economics Research Seminar Series: Joyce Liu

Selecting less corrupt bureaucrats: A quasi-auction approach. Dr. Joyce Liu, Peking University. 

The detrimental effect of corruption on economic growth and social stability has been extensively documented. Many recent discussions have focused on the preemptive measures to curb corruption ex-ante. This paper presents a dynamic model where the bureaucrats may engage in socially wasteful rent-seeking, or corruption, for private benefits. Each bureaucrat uses a privately-known discount factor to compute the present value of future streams of job benefits, incorporating his optimal rent-seeking plan on the job. We show that rent-seeking is inversely related to the salary growth rate, the monitoring-penalty rate, and one's discount factor. Consequently, the less bureaucrats value their job, the more they are inclined to corruption. This negative relation suggests a simple "quasi-auction" mechanism for selecting less corruptible bureaucrats between observationally-equivalent applicants. The empirical evidence confirms the validity of using wage growth to prevent corruption preemptively. 

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