Seeds of Corruption : Do Market Institutions Matter?

Ten years into the transition, corruption is so pervasive that it could jeopardize the best-intentioned reform efforts. The authors present an analytical framework for examining the role market institutions play in rent-seeking and illicit behavior. Using recently available data on the incidence of corruption, and on institutional development, they provide preliminary evidence on the link between the development of market institutions, and incentives for corruption. Virtually all of the indicators they examine appear to be important, but three are statistically significant: 1) the intensity of barriers to the entry of new business. 2) The effectiveness of the legal system. 3) The efficacy and competitiveness of services provided by infrastructure monopolies. The main lesson emerging from their analysis: a well established system of market institutions - clear and transparent rules, fully functioning checks and balances (including strong enforcement mechanisms), and a robust competitive environment - reduces opportunities for rent-seeking and hence incentives for corruption. Both the design, and effective implementation of such measures are important if a market system is to be effective. It is not enough, for example, to enact first-rate laws if they are not enforced. The local political economy greatly affects whether a given policy reform will curtail corruption. Especially important are the following factors in the political economy: a) the credibility of the government's commitment to carrying out announced reforms. B) The degree to which government officials are captured by the entities they regulate or oversee. C) the stability of the government itself. D) The political power of entrenched vested interests. Economists in the field of industrial organization, antitrust, and regulation have long recognized these factors as potent determinants of opportunistic behavior, corruption, and "capture" of government officials. Only now are they becoming conventional wisdom among specialists in economies in transition.

Bibliographic Details

Main Authors:	Broadman, Harry G., Recanatini, Francesca
Language:	English en_US
Published:	World Bank, Washington, DC 2000-06
Subjects:	ACCOUNTABILITY, ACTIONS, ALLOCATION OF RESOURCES, ANTI-COMPETITIVE CONDUCT, ASSET MANAGEMENT, AUTHORITY, BANKING SYSTEM, BANKRUPTCY, BARRIERS TO ENTRY, BUSINESS ENVIRONMENT, CABINET, CENTRAL PLANNING, COLLUSION, COMPETITION POLICY, COMPETITIVENESS, CONFLICT OF INTERESTS, CONSUMERS, CONVENTIONAL WISDOM, CORPORATE GOVERNANCE, CORRUPTION, COURT PROCEDURES, CPI, DECISION-MAKING, DECREE, DEGREE OF CORRUPTION, DEVELOPMENT AGENCIES, DISCLOSURE, DISECONOMIES, DISECONOMIES OF SCALE, ECONOMIC DEVELOPMENT, ECONOMIC REGULATIONS, ECONOMISTS, EMPIRICAL EVIDENCE, EMPIRICAL STUDIES, ENACTMENT, ETHICAL STANDARDS, FINANCIAL AUDITS, FINANCIAL CONTROL, FISCAL, FOREIGN COMPETITION, FOREIGN DIRECT INVESTMENT, FOREIGN INVESTORS, FOREIGN TRADE, FRAUD, GDP, GOVERNANCE REFORM, GOVERNANCE REFORMS, GOVERNMENT AGENCIES, GOVERNMENT DECISION, GOVERNMENT EFFORTS, GOVERNMENT OFFICIALS, HARD BUDGET CONSTRAINTS, IMPORTS, INCOME, INDUSTRIALIZATION, INHERITANCE, INSOLVENCY, INSOLVENCY LAW, INSOLVENCY LAWS, INSOLVENT, INSTITUTIONAL DEVELOPMENT, INSTITUTIONAL REFORM, INTERNATIONAL DEVELOPMENT, INTERNATIONAL TRADE, INVESTMENT CLIMATE, JUDICIARY, LAW INDEX, LEGAL FRAMEWORK, LEGAL SYSTEM, LEGISLATION, LEGISLATURE, LEVELS OF GOVERNMENT, LOBBYING, LOCAL LEVELS, MARKET ECONOMY, MARKET POWER, MARKET PRICES, MERGERS, MERITOCRACY, MONOPOLIES, MONOPOLY, NATURAL MONOPOLY, OIL, OLIGOPOLY, PLANNED ECONOMIES, POLICY INSTRUMENTS, POLICY MAKERS, POLITICAL ECONOMY, POLITICAL INSTITUTIONS, POLITICAL POWER, POLITICIANS, PREDATORY PRICING, PRICE FIXING, PRIVATE SECTOR INVOLVEMENT, PRIVATIZATION, PRODUCERS, PUBLIC HEARINGS, PUBLIC OFFICIALS, QUOTAS, REGULATORY CAPTURE, REGULATORY OVERSIGHT, REGULATORY REGIME, REGULATORY REGIMES, REGULATORY SYSTEMS, RENT-SEEKING BEHAVIOR, REPRESENTATIVES, SOCIAL STABILITY, SOFT BUDGET CONSTRAINTS, STATE ENTERPRISES, STATE OWNERSHIP, STATE PROCUREMENT, STATE-OWNED ENTERPRISES, STATISTICAL ANALYSIS, TAX ARREARS, TRANSITION ECONOMIES, TRANSPARENCY, UNOBSERVED COMPONENTS MODEL,
Online Access:	http://documents.worldbank.org/curated/en/2000/06/437225/seeds-corruption-market-institutions-matter https://hdl.handle.net/10986/19833
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