Tesis
Signaling corruption through conspicuous consumption
Autor
Ruzzier, Christian
Institución
Resumen
Public officers suspected of corruption are often seen consuming conspicuously luxury goods.
Since this raises public awareness about them, it can backfire and lead to an investigation that
eventually finds them guilty of corruption. One plausible explanation to rationalize this
behavior is that, by signaling their willingness to be corrupt, they can attract the pool of corrupt
firms and get higher bribes. In this work, we consider a public procurement setting where the
government delegates a supervisor to run the process. If the signaling cost is low enough, then
there exists a separating equilibrium where the supervisor signals his type and obtains a higher
bribe. Even when the government fixes a budget constraint or maximum price before assigning
a supervisor, a signaling equilibrium can still exist, but with a lower reserve price than socially
optimal. Therefore, even though the government can reduce the bribe revenues, corruption and
signaling can result in aggregate welfare loss.