The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires

Rafael Di Tella, Ernesto Schargrodsky
2001 Social Science Research Network  
We study the prices paid for basic inputs during a crackdown on corruption in the public hospitals of the city of Buenos Aires, Argentina during 1996-97. As in previous, informal accounts of corruption-crackdowns, there is a well defined, negative effect on the measures used to capture corruption. Prices paid by hospitals for basic inputs fall by 18% during the first six months of the crackdown. After this period prices rise, but they are still 10% lower than the pre-crackdown level. Input
more » ... s paid are uncorrelated with the wage premium received by the procurement officers of the hospitals when the audit intensity can be expected to be very low (prior to the crackdown) or very high (during the first months of the crackdown). After the initial six months, however, the effect of efficiency wages on prices is negative and well defined. The effects are economically significant: a 10% increase in the procurement officer's wage when the perceived probability of punishment is at the average of our sample is expected to bring about a 1.2% reduction in input prices. These results are consistent with the standard model of bribes of Becker and Stigler (1974) . Using micro data helps avoid simultaneity problems. JEL: K42.
doi:10.2139/ssrn.269490 fatcat:viswejfcozdtlpqpy6bj4gqcsi