Rev Ind Organ (2009) 35:123–148
Regulatory Intervention, Corruption and Competition
Published online: 1 October 2009
© Springer Science+Business Media, LLC. 2009
Abstract This paper analyzes the effect of anti-corruption policies in a framework
that accounts for the impact of changes in market structure on the incentive structure
of bureaucrats in charge of inspecting ﬁrms. In this context, potentially adverse conse-
quences of standard anti-corruption policies, including monitoring and random audit,
education campaigns and the introduction of competition, which may result in more
equilibrium corruption, are discussed. Finally, it is shown that while the total social
cost of corruption may be increasing, these policies are always welfare improving,
even when they lead to more corruption.
Keywords Corruption · Competition · Regulation
JEL Classiﬁcation D73 · L22 · L51
Following the emergence of corruption as a central topic of the international policy
debate in the 1990s, the economic understanding of the mechanisms of corruption has
made important progress, both at the theoretical and empirical level.
While there has
been an active policy debate on how to ﬁght corruption, the theoretical understanding
of the potential effects of anti-corruption measures is still lagging.
Indeed, a complete
See, for example, Bardhan (1997)andAidt (2003) for surveys on corruption economics.
See, for example, Klitgaard (1988), Rose-Ackerman (1999)andWorld Bank (2001), and the references
S. Straub (
Toulouse School of Economics—Arqade and IDEI, Université Toulouse 1, Manufacture des Tabacs,
31042 Toulouse Cedex, France