Corruption and the public display of wealth

• DOI: http://doi.org/10.1111/jpet.12247
• Published date: 01 August 2017
• Author: Steffen Lippert,Simona Fabrizi
• Date: 01 August 2017

Received: 15 January 2017 Accepted: 6 March 2017

DOI: 10.1111/jpet.12247

ARTICLE

Corruption and the public display of wealth

Simona Fabrizi Steffen Lippert

Universityof Auckland

SimonaFabrizi and Steffen Lippert, Department

ofEconomics, University of Auckland, Private Bag

92019,Auckland 1142, New Zealand; and ATE

ResearchNetwork (s.fabrizi@auckland.ac.nz and

s.lippert@auckland.ac.nz).

Weare grateful to two anonymous referees,

theassociate editor and the editor, Rabah

Amir,for their very helpful comments. We also

thankMartin Berka, Federico Boffa, Gautam

Bose,Francis Bloch, Ananish Chaudhuri, Toby

Daglish,Catherine de Fontenay, Oguzhan Dincer,

DavidFielding, Gigi Foster, ArghyaGhosh, Chris

Hajzler,John Hillas, Marit Hinnosaar,Mamoru

Kaneko,Ian MacKenzie, Hodaka Morita, Alberto

Motta,Felix Munoz-Garcia, Martin Paldam,

PatrickRey, Jose Rodrigues-Neto, Friedrich

Schneider,Jack Stecher,and John Tang, as well

asconference participants in the 2012 IIOC, the

2012SAET, the 2012 EARIE, the 2nd Microeco-

nomicsWorkshop at VUW, the 2013 AETW,and

seminarparticipants at the University of Macer-

ata,Massey University, and the University of New

SouthWales for their suggestions.

We study an agent–client model of corruption, in which potential

corruptors are uncertain about the probability with which officials

are subjected to an audit, either high or low. We characterize a sig-

naling equilibrium, in which officials who are less likely to be audited

engage in public conspicuous consumption, whereas those who are

more likely to be audited do not. In this equilibrium, officials are bet-

ter off than in the equilibria without conspicuous consumption. The

signaling equilibrium exists if the officials’ bargaining power vis-à-vis

potential corruptors is sufficiently high, which implies that corrup-

tion can be curbed by creating competition among officials.

1INTRODUCTION

In late 2011, “in a morning raid, French police towed away11 luxury cars, including a Maserati, a Porsche Carrera, an

Aston Martin and a Mercedes Maybach”from Teodorin Obiang Jr.,the eldest son of the President of Equatorial Guinea.

At that time, Obiang Jr. held the position of Equatorial Guinea’s agriculture and forestry minister, a job that paid €

3,200per month.1As in the corruption c ase ofPresident M arcos ofthe Philippines, theglaring discrepancy between his

official income and his lifestyle raisedthe suspicion that ObiangJr.’s spectacular wealth had been acquired dishonestly,

something that now the Criminal Court of Parisis charged to establish.2In Marcos’s case, prosecutors found “a number

ofluxury items …, including 2,300pairs of shoes in First Lady Imelda Marcos’ closet,” which the prosecution “decided to

protectand exhibit …, together with all of the contents as evidence of corruption on a grand-scale by the Marcos’.”They

reasoned that, “since Marcos was not a wealthy man before entering politics, these items were probably acquired with

1Reportedin The Guardian, February 6, 2012.

2Among other things, Obiang Jr.was indicted by the French justice of several counts of money laundering and corruption. The case sits currently with the

Criminal Court of Paris and an arrest warrant is out with Interpol. Franceis one of several countries, including the United States and Switzerland, in which

ObiangJr. is under investigation.

Journal of Public Economic Theory.2017;19:827–840. wileyonlinelibrary.com/journal/jpet c

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