Publicity Attached to Reputational Incentives: Anti-corruption Models in the Public Administration

Abstract

This article aims at showing how reputational incentives can be used as a powerful mechanism to address corruption. The method derives from Tirole (2009) relating to the effect of rewards on individuals motivation. The article considers rewards as incentives proposed by the principal in a principal-agent model with information asymmetry related to the agent’s effort. The purpose of this article is to differentiate the types of incentives between monetary ones and reputational ones. We define an additive separable utility function for the agent by distinguishing between the utility related to the monetary incentive and that related to the reputational incentive. And, we determine the indifference curves of the respective utility function and calculate the marginal rates of substitution. The article provides two main results. First, the study indicates that the change in the attractiveness of monetary incentive from an increase in reputational incentive is negative. This result shows a prosocial effect of reputational incentive that reduces the attractiveness of monetary incentive. That shows the powerful impact of reputational mechanisms as incentive that leads to the probity effort of public administration officials. The other result indicates that the change in the attractiveness of reputational incentive from an increase in monetary incentive is negative. This result shows the harmful effect of the monetary incentive that reduces the attractiveness of the reputational incentive and shows that monetary incentives cannot be used to deal with the greed of individuals. These results are reinforced by the positive marginal substitution rates.The article concludes that reputational and publicity mechanisms are powerful motivators that must be taken into account in the design of costless public policies and administration reforms to address corruption of public officials. Furthermore, monetary incentives should not be used as a tool of addressing corruption.

Keywords: Reputational Incentives, Principal-Agent, Corruption

JEL Codes: A13, D73, D78, D82

DOI: 10.7176/JESD/10-8-11

Publication date: April 30^th 2019