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

TLDR

The findings align with Becker and Stigler’s standard model of bribery. The study examines prices paid for basic inputs in Buenos Aires public hospitals during the 1996–97 corruption crackdown. The authors analyze price data across the crackdown phases, controlling for fixed effects. The crackdown reduced input prices by 15 % in the first nine months and kept them 10 % lower overall, with higher wages having no effect when audit intensity was maximal but a negative effect at intermediate levels, and a wage elasticity of input prices exceeding 0.20.

Abstract

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. We find a well‐defined, negative effect on the measures used to capture corruption. Prices paid by hospitals for basic, homogeneous inputs decrease by 15 percent during the first 9 months of the crackdown. After this period prices increase, but they are still 10 percent lower than those prevailing before the crackdown. Relative to the precrackdown period, higher wages play no role in inducing lower input prices when audit intensity can be expected to be maximal (during the first phase of the crackdown) but have a negative and well‐defined effect when audit intensity takes intermediate levels (the last phase of the crackdown). Controlling for fixed effects, we find that the wage elasticity of input prices exceeds .20. These results are consistent with the standard model of bribes of Gary Becker and George Stigler.