Corruption Dynamics: The Golden Goose Effect

Abstract

Theoretical work on disciplining corrupt agents has emphasized the role of promised future rents (e.g. efficiency wages) but not of illicit future rents. Yet when opportunities for future rent extraction increase, agents should extract less rent today in order to preserve those opportunities. We study this "golden goose" effect in the context of a statutory wage increase in India's employment guarantee scheme, comparing official micro-records to original household survey data to measure corruption. We estimate large golden goose effects that reduced the total impact of the wage increase on theft by roughly 64%.