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 10: Is There an Anti-corruption Agenda in Regulation? Insights from Colombian and Zambian Water Regulation

Frédéric Boehm


1 Frédéric Boehm . . . as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits. (George J. Stigler, 1971: 3) 1. The problem of corruption in regulation Regulation requires balancing different interests. Most therefore would agree that such regulation should be ‘independent’ from any one of these interests.2 In a paper published by the World Bank on regulatory independence, Smith (1997: 9) defines the ‘independence’ of a regulator as ‘arm’s-length relationships with politicians, firms, and consumers’. But independence is at risk if corruption is an option for the players in the regulatory game. Regulators and politicians responsible for enacting and monitoring regulation may abuse their entrusted public power in order to foster their own or other private goals. This is precisely the commonly used definition of corruption, for instance, by the World Bank: an abuse of public power for private gains. As emphasized by Estache and Martimort (1999), corruption, regulatory capture, and regulatory opportunism are transaction costs of regulation; they all compromise efficiency. Chapter 9 by Estache and Wren-Lewis in this volume discusses the potential problems that corruption might cause and the costs that accompany it. Shielding regulation from corruption is thus an important safeguard for the effectiveness and efficiency of regulation. This chapter develops a set of ‘green flags’, that is, measures likely to reduce the risks of corruption in regulation. Against this benchmark the regulatory frameworks of the water sector in Colombia and Zambia are analyzed. Therefore, like the chapter...

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