Delegating Authority to a Dishonest Agent

A citizen and a bureaucrat implement a project jointly, with the bureaucrat holding executive authority. The citizen's investment yields information, which raises output, and also has supervision benefits. We show that a higher degree of dishonesty increases the citizen's incentive to invest, which in turn enhances the bureaucrat's investment incentive. The gain from joint investment can more than offset the loss from dishonesty, and so the citizen may prefer a corrupt bureaucrat to an honest one. When the citizen also decides task assignment, he may choose to introduce a conflict of interest by ceding authority to a dishonest bureaucrat