International Handbook on the Economics of Corruption, Volume Two
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International Handbook on the Economics of Corruption, Volume Two

Edited by Susan Rose-Ackerman and Tina Søreide

A companion volume to the International Handbook on the Economics of Corruption published in 2006, the specially commissioned papers in Volume Two present some of the best policy-oriented research in the field. They stress the institutional roots of corruption and include new research on topics ranging from corruption in regulation and procurement to vote buying and private firm payoffs.
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Chapter 9: Anti-Corruption Policy in Theories of Sector Regulation

Antonio Estache and Liam Wren-Lewis


Antonio Estache and Liam Wren-Lewis 1. Introduction Corruption in regulated industries has always been a problem, or at least for as long as regulation has existed. Most regulated industries involve large costly investments and long maintenance and operational contracts – two obvious sources of financial rents. Many also deal with politically sensitive sectors in which price control or creative tariff structures are easy to implement and employment opportunities abound – also strong sources of political rent. Together, these are probably the core sources of corruption in these industries. Historically, the core problem was thought to be the active manipulation of the regulatory environment by high-level politicians or dictators for financial gain. Such corruption then served to create politically motivated jobs or to inflate costs artificially to create rents either to finance political activities or to feed private accounts in a foreign bank. An extreme example is President Samuel Doe’s management of Liberia’s assets in the early 1980s.1 The example has most of the ingredients common to much corruption in regulated industries. It also shows that the way we think about corruption today is simply an adaptation of how we used to think about it up until 20 or 30 years ago. The rules have changed, but the sad game itself has not. Many management positions in Liberia’s major utilities (and many of the ministries) were staffed with friends, family, or political and financial allies of the head of state or of some strong minister. Many low-skill jobs, which contributed to the overstaffing...

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