How Business Community Institutions Can Help Fight Corruption
This paper considers the possibility of collective action by the business community to counter corruption in the award of government licenses and contracts. The analogy is with contract enforcement institutions studied by economic historians and co...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2014/06/19737972/business-community-institutions-can-help-fight-corruption http://hdl.handle.net/10986/19371 |
| Summary: | This paper considers the possibility of
collective action by the business community to counter
corruption in the award of government licenses and
contracts. The analogy is with contract enforcement
institutions studied by economic historians and contract law
scholars. The institution in this context comprises a
no-bribery norm, a community system to detect violations,
and a multilateral ostracism penalty upon conviction in a
community tribunal. The requirements such an institution
must meet if it is to be effective are analyzed. It is shown
that an institution of sufficient quality -- combining
probability of correct detection and severity of punishment
-- can eliminate bribery. If the private institution is not
sufficiently good, then in conjunction with the state's
formal apparatus it reduces the level of bribes demanded,
but increases the probability of winning the license or
contract through bribery. An improvement in the
government's formal anti-corruption mechanism, holding
the private institution constant, reduces both the level of
bribes and the probability of success through bribery. The
two institutions together are shown to achieve substantially
better outcomes than either can on its own. |
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