closely associated with the national interest, sich a public uses or teansportation (Yotopoutes 1585: 628). Bribery may simply bea sb stu forthe sei delng that prevailed under sate ownership. ‘Second, fequenty the sint eof only a potion a the tate frm, ten etsinng contol, st east athe early yous Such hybrids gy be ‘epecilly object to corp nse arrangements (Katmann and Sess tum 197: 42), Pave shareholders ina Gm ha partly owned bythe slate may atempt to sit losses onto the sate with the cae nlvance of publ ofits. In Hay for example jot poblc-private ‘venture inthe chemical industry sees to have involved just such rans er Bribes were apparently paid both fo benefit the pvate fina when the vente was formed and to obtxin high pie for the ame sets tren the entre broke downs therm wat renationalizd (Colas {ath and Rose- Ackerman 1958), Cont incentives mey mean thatthe most ecient bier loses oat toe ooops insider. ven the mos ecient firm does win, corrption inthe tendering proces asses thatthe goverment reser 00 ie From the sal This pis higher taxes or ler pubic spending Concations ‘Corrpton that faves top-level offal can produce serious dor fins tn the way government and sodsty operat The sale pay 100 ‘och for lnrgovcleprosuromeats and receives Toot rm pit ations andthe award of concessions Coeupt ofa dort public fect choices to generat large rents for themselves and to produce Inefiient and inequitable pubis poles Government produces 00 ‘ny ofthe wrong Kind of projects and overspend even on projecs {hat ore fundamentally sound, Corruplon radges the revenues bones of privatization and the award of concessions. Fis hat ‘eitn monopoly power through bribery and favoritim undermine te ciency benefits of turing overstate fms to pevate owners ns SS 4 Reducing Incentives and Increasing Costs Corre incentives ext boca state ols have the power to all tale seace benefits and impo enero costs een sary es at te heart of corp dels ase sighs derived from microcomomics canhep structure clos to reduc orton Tas chpler nd the next {ous on incetie-baed afr that reduce the Bence or increase ‘the costs of malfeasance This chapter considers the following relorm options + program elimination, + reform of publi prowrams, ‘dilate reform, 4 the detent etfs of anticorrupsion avs and + prociremen ystems. Program Elimination The most sightforward way to init comuption is to eliminate ‘errptionsnden programs IF the tate has no suthority to restr ex- er exnse businesses his eliminates a source of bribes I subs? FREER cinnsH the bites dat scomponie it wll zappest 8 Wal. prs contol ae ied mark eee Wl pre crest vaies [genera elorms thatincresse the competivenss ofthe econemy Wil help reduce eoeropt incentives (Ades and Di Tull 1985, 1997 510, Sone publi rowan eck a onda uncon pial tadecerad distri potlely Wkly socen cf pays especialy ifetizens andi have no recourse. In sich cae program ciation issometimes atte than more subtle rform stratepes Far example he 2‘ceases and permissions needed fo et up busuesses and continue them in operation may have no sound policy jusifeation. Studies of Alin, {an Ameria and Eastern Europe suggest thats the as in many counties and iat such programs are atten very corrupt (Bigton and Moene 196; Kaufmann 1997, Stone, Lev and Paredes 1992). Eiminat {geome ules and stecamiining and arfving others seers 3 003 pley ‘Subsidy programs can alo become pemmested wih comrupon Ibath biker and bribes re beter of with disonest sytem, detection wll be dif, and program elinination may be the only feasible pon. For example, an Argentine program to encourage te growth o under Aoveloped elon through export subsites was vary inelortive bacass ‘of fad and corruption. A. given product eoold “be exported several times trough southern ports" an "lose-to-fke"fectris were Setup in favored regions that did litle or mo pocesing of podocte mans factred elewhere. A World Bank-sponsored study eoncded tat the program wa ineffective with an estimated 2s percent of he subsidy lost {od hogs 98.297) Thncome tobe mex of og that the government ought spy to climinte ‘One way to reduce coruption isto legal formeey Hoga actos Frequent when a prod! outlawed, proton eotines bot with ep nen peng he oie tay n operation Ten poy. ‘ramp aler «short experiment with Prohibition, the United States ‘epetied the Eighteenth Amendonent othe Conetuton outawing the ‘manufacture and sale of ivocaing quer Is moi ores betweoe 1919 and 1983 was a peiod of widespread egal production abd seat leah and pervosive coupon ofl enforcement offers The wold ‘ride debate over legaling drs turns oa te feasibility of comaling “he indsty trough the ermal aw when lw enforcement stories tye vulnerable to corruption Gambling formerly outawed many ‘Serica jurists was ao aimportant source of corrupt resis forthe police The response in many jrsscons has heen to trn gn bling into Teal tannese ~ abet ander heavy sate supervision and ates sate ownership ‘Sometinesromving one sot of corrupt incentives may create new opportunites ekewhre,Eimiating nine ofthe ten iene needed pen a business may jit pie the remaining ofl sosexs to bipot bribes Removing ely barron for private fs may indace managers to payoff the police fo barat their competitors Dacegulating in one ten. may incense coeruption elewhere This wil BY espedaly Weve iar prota setytmergo through sein of “choskpoins” For example a successful effort by the United States Agency for Interna. tional Development to redo corruption in th ragport of ezclttal ‘rode in One Arian country Ineeasedeorroption in neighboring Ecuntsies onthe same transport rte The project reduced the number ‘of bribe-xtrscon checkpoint exablhed by police and, cutons ‘cil along onion transport routes in Niger. Untreated Snincrease in pyotls and tat evelin COtvoireo the olons nated {ek destination - the food markets of Abijo (Roger sn T3199), Soch examples highlight the importance of taking a systemic approach, hich may mean tracig the impact sss national boundaries ‘Althoupksiminatingeorapton prone programs ean limi the ince ves for payors general progr fo sik lesz of goverment wl not necssnly reduce coraption (Rose-Ackeraa 19560). Recall hat Scary produces corrupt incentives, end nie that reductions in tow {ramen speading can produce rary when spending programs ste {it oF wien eogulatory budgets fall with no change inthe underpin Soates Even worse, fa goverment under fel pressure cue back Spending, it may st te sama ine sec to maintain nfs Ey Ineessing epuatons end mandates The eat canbe increased or ‘option (Chibber 1956 127). rogram elimination emotes th corrpt incentives that accompanied i but budget cutbacks that leave the program intact may not For ‘example, suppose thet rbsitie for higher education had previously been availa oalstadens who pss an entrance exam, bt that they sow given only othe top 50 percent. The sere created by the ct tacks exzates corp incentives where none existe! Before: So Tong 3 sun gfading Is oe of alt, the rrp one alton it ie the pessing grado so the shrunken program rine etiement char acc. Othet ways of reducag demand ~ such a complex eppications, long ques cto based on need ~all generate oct icenives ‘Whe government spending fal the contractors who benaied the past fom pulls cotrcts may sller~ especially rms a0 speciliaed that they cannot change dietin ati, Domestic military contractor sae usely inthis atgory. Multnational re key tobe lee acted both becase oftheir versed product mix and Beene they cn ell nother countries Fs tat have twoubl shiing direction may brie {0 obain a share ofthe shrinking ple of government sine Tie total ‘quinity of ees mig fal, bathe bribe per projet can re Once te overnment i foked nto dealing witha partalr contactor, bribery fan tl be tied fo get inated prices, to aecehape for material oe 1 inp on quality Simla, suppose budget cutters have the budget of a regulatory‘gency with ao change in the underlying statue. Fit, consider a statute that porte Sema to tunes he eaten vation. Tn that cae few businesspeople wil complain about budget cutbacks Inspections tnd othr ees wil be resveed 9 Benefit for rms A Brn manager Ss has sn neotive tebe an lspocor ut will do so less often because inpestors come less often. ‘Second oppor tata sw requires fms to obtain a Hzemte. Then budget cutback with nochange inthe undelyicg saute nereases or- rit incentives Firms and individels wil be encouraged o pay brides to et tho sere stlenton ofthe regulatory ahontis orto ptt the esd ofa ong queue Bribes paid ty some ead a more dlas for oer, = rout tht may Snduce mare o pa bebe, end so on ~ producing & ‘hus eels (Rowe Ackerman 197K 85-108) Jota inthe eee of et backs in subsidy programs shrinking government regulatory atv may incense not decresse, encruption unless the statues are changed to reflet the lower bude totals Tabor the limiration of sponding and regulatory programs canbe 4 potent coruptionreducing statog). However, poly makers mist ‘hock fo be sue thatthe payolls donot jus reappear ehewhere. Fur thermore, an overall contrton Inthe sz of the goverment budget smay snply make government benete scarcer Corcuption may ten [nerease ws potential beneiales compete forthe intesingl saree ool of benefits Spending cts sosompaniod by increases in epuations may simpy sit the [oco fcorrption Ii not enough fora country {o gst a8 macrosronome tolls i line with IMF pudelines Nations ‘Should be concerned with the underping tuctar of pubis prograns ‘ot just tesla of government Establishing a Credle Privatization Process ‘Aste previous chapter made ler, privtization i both an anton tion reform and a new potential source of corrupt ening Albu pe ‘tation i desiebeina wide range of ees, reformersovght toes tho prot to reduce the incentives for rent seeking that remain. The proces shoul xsire the wie level of participation rather han favor fg conorsa with song des fo local eles and must be transparent and ‘rel pxbczed espera inthe evalvation of ast" When an ine sao Spb (957), Mant (90), ek 8 Spyies amy ot taper td ye crm nar aie op ys Ce ain eal appears inevitable, privatization if not Bikey to be worthwhile besause publ mf eastr to monitor than a private one However, semetimes ven a transfer to an iier may be desirable ithe ew ‘ener isinslated om some fhe psa! presses that interfere with ‘ficient performance. Tf plvatzed fms wil retain monopoly owe, aew rputory inst tutions must be crested that re not themseives subject to improper inuoce Tis important oat up the roglatory famework ia cred ‘le ay bafoce tendering bop Developing snd aneonaleonoriee wit eeuy plate public utes mast set up strong apoieal rol {ory agencies wit transparent and open processes (Tenenbaizn 1955) “Tis will reduce both the uncertainty ssioeatd with tendering and the possibly that the winning bier can manipulate the proces by which feguletory isulon are created (Manzeta 1997; Nelle nd Kiet 158-670 Regulatory models trom éeveloped counses may not be rely teanfrabe to those with less borer expat ad ore rik of fevruption and captre bythe requ ms New titans mt be Atsigned withthe eri varabe in mind. Dissetion aust be both limited and managed. New regulatory agencies aed clatively dlr, snp and enforeable guidlines ‘Cost studies of teecommunicatons epulstion nsx diverse counties demonstrate the need for resins on dicotion, a sable legal en ‘ronment and ceeibe enforementintiatons (Loy and Spe 1990) ‘The authors conclu that an independent judlary ls a noes com Aiton for etfctve regulation a peiatioe induces Even i an inde pendeot judiciary exists however wl be setfecve unless the plies process can estas binding legal consis If lhe o these cone ‘Son mising,privatination may generat few bent forthe pubic (Only firme with corupt ise relations to poll leaders may be wing f bid wea public ems are pu on the auction bok The rele Wl below bide and excesively favorable treatment inthe fire Fal ceaible commlumens are posible the strength and gualty ofthe bureaucracy determines whether «county ought to ete for ‘imple epulatory rule Jamaica, for example, bas a espected indepen ent judiciary, bac is weak sdmiaitratvesapacty ounce the ure of ‘esttn cone For presen! nd arate pre fa