Abstract
We consider a principal-agent model to examine the conditions under which corruption prompts investment. We also investigate three policies that can be used to combat corruption: strengthening monitoring, increasing compensation, and enhancing accountability. Our theory suggests that increasing monitoring intensity mitigates corruption at the cost of reduced investment. The most cost- effective policy to control corruption is to enhance accountability, which reduces corruption without decreasing growth-enhancing investment. We test our theo- retical predictions using Chinese infrastructure investment and corruption data. The data show that infrastructure investment is negatively correlated with anti- corruption effort, as predicted by the theoretical model.
| Original language | English |
|---|---|
| Pages (from-to) | 40-54 |
| Number of pages | 15 |
| Journal | Journal of Economic Behavior and Organization |
| Volume | 175 |
| Early online date | 17 May 2020 |
| DOIs | |
| Publication status | Published - Jul 2020 |
| Externally published | Yes |
Keywords
- China
- Corruption
- Infrastructure development
- Investment incentive
