ABSTRACT
This chapter describes district financing and Ghana’s procurement regulations as well as the author’s observation of a local procurement meeting that exhibited numerous irregularities. Drawing from that meeting, the chapter builds a theory of political financing in developing countries. Politicians need kickbacks from contractors to finance campaigns, and bureaucrats need kickbacks to finance retirements. Politicians and bureaucrats, playing ultimatum games with each other, divide contracts that favor their preferred contractors, forming a “minimum coalition” to ensure that sufficient bureaucrats approve the deal. Bureaucrats’ technical expertise conveys justification to auditors who might inquire about how contracts were allocated. While individual bureaucrats may oppose rigging, they are caught in collective-action dilemmas: individual bureaucrats who blow the whistle can be punished by politicians with job transfers. In addition, politicians need money to repay political-party chairs for their support; if politicians oppose this obligation, chairs can deploy loyalists to ruin their careers. As a result, each player is locked into an iron square of reciprocal demands and funds are extracted from development projects, reducing their quality. Traditional chiefs and citizens do not hold decision makers to account because they depend on politicians and parties for private support.
