Spending (other people's) money
The following was something I read on a blog but I forgot which (financial) blog it was. So if anyone knows which blog it is, please let me know. Thank you.
The blog may have even stated that this idea from another source.
Firstly, imagine a John. He generates the money that he spends to benefit himself (i.e. spending your own money for your benefit). Thus this motivates him to maximise the benefits derived from the spending (or saving, investment etc).
Then imagine a second scenario where John's uncle gives him money to spend for John's benefit (i.e. spending other people's money for your benefit). This should still motivates him to maximise the benefits although he may not be as careful with the money since he does not generate it himself.
A third scenario is where John's uncle asks John to spend money for the benefit of the community he lives in (i.e. spending other people's money for the benefit of other people - could be the same group of people). John has even less motivation to maximise the benefits since he does not enjoy the benefits.
It may be a little simplistic but don't you think the third scenario describes a government? The government was "given" (via tax and aid) money to manage for the benefit of the people. Corruption arises when a government illegally switch this to the second scenario i.e. spend the money for the goverment's benefit.
How could we prevent or minimise this? My first thought was to put the money into a trust account and its trustees should be independent of the government. However, what is going to stop the trustees for unnecessarily hindering the government from spending on (morally) legitimate projects? Even trying to ensure the independence of the trustees will probably be difficult in practice.
I haven't given much thought about this. How about you? Any ideas?
The blog may have even stated that this idea from another source.
Firstly, imagine a John. He generates the money that he spends to benefit himself (i.e. spending your own money for your benefit). Thus this motivates him to maximise the benefits derived from the spending (or saving, investment etc).
Then imagine a second scenario where John's uncle gives him money to spend for John's benefit (i.e. spending other people's money for your benefit). This should still motivates him to maximise the benefits although he may not be as careful with the money since he does not generate it himself.
A third scenario is where John's uncle asks John to spend money for the benefit of the community he lives in (i.e. spending other people's money for the benefit of other people - could be the same group of people). John has even less motivation to maximise the benefits since he does not enjoy the benefits.
It may be a little simplistic but don't you think the third scenario describes a government? The government was "given" (via tax and aid) money to manage for the benefit of the people. Corruption arises when a government illegally switch this to the second scenario i.e. spend the money for the goverment's benefit.
How could we prevent or minimise this? My first thought was to put the money into a trust account and its trustees should be independent of the government. However, what is going to stop the trustees for unnecessarily hindering the government from spending on (morally) legitimate projects? Even trying to ensure the independence of the trustees will probably be difficult in practice.
I haven't given much thought about this. How about you? Any ideas?
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