Dundee Discussion Papers in Economics 112: Hierarchies, incentives and collusion in a model of enforcement

This paper considers a model of enforcement with corruptible enforcers in an agency framework. We examine how supervisor’s choice of effort and honesty are influenced by incentives (penalty and reward schemes) and organizational structure. We consider both vertical hierarchies (corrupt supervisor monitoring another) and horizontal structures where more than one corrupt supervisor monitor the agent. The latter tend to induce less corruption but need not welfare dominate the vertical hierarchies. The organizational structure matters most when there are constraints on rewards and penalties.