A note on exogenous changes in incentives for and deterrence of corruption

In this note we amend the model elaborated by Acemoglu and Verdier (2000, The American Economic Review, 90(1),194-211), to examine how agents respond to an exogenous change in incentives. In particular, we apply the theoretical framework to the consequences on the corruption level in Italy of a famous sentence of the Italian Corte di Cassazione in plenary session: in this sentence, no. 500 of 1999, a revolutionary interpretation of the law has increased the area of civil liability for both the public administration and bureaucrats. This is one of the few cases in which the judge substantially legislates in a system of civil law, and the modification in incentives towards or away from corruption comes from an authority that is not part of the game. © 2007 Springer Science+Business Media, LLC.