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This paper considers the possibility of collective action by the business community to counter corruption in the award of government licenses and contracts. The analogy is with contract enforcement institutions studied by economic historians and contract law scholars. The institution in this context comprises a no-bribery norm, a community system to detect violations, and a multilateral ostracism penalty upon conviction in a community tribunal. The requirements such an institution must meet if it is to be effective are analyzed. It is shown that an institution of sufficient quality-combining probability of correct detection and severity of punishment-can eliminate bribery. If the private institution is not sufficiently good, then in conjunction with the state's formal apparatus it reduces the level of bribes demanded, but increases the probability of winning the license or contract through bribery. An improvement in the government's formal anti-corruption mechanism, holding the private institution constant, reduces both the level of bribes and the probability of success through bribery. The two institutions together are shown to achieve substantially better outcomes than either can on its own.
Anticorruption --- Business Community --- Corruption & Anticorruption Law --- Crime and Society --- Cultural Issues --- E-Business --- Law and Development --- Multilateral Ostracism Penalty --- Private Sector Development --- Public Sector Corruption and Anticorruption Measure --- Public Sector Development --- Social Accountability --- Social Development
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Microeconomics --- Microeconomics. --- 330.00 --- Price theory --- Economics --- Economische en sociale theorieën: algemeenheden. --- internationalisering --- micro-economie --- Economische en sociale theorieën: algemeenheden
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The paper argues that to achieve compliance of firms with regulations such as product quality or environmental or health standards it is better to have industries with a few large corporations than numerous small firms. A model is constructed to show that limited liability constraints bind more easily in competitive industries, making it harder to impose sufficiently severe penalties and costlier to send sufficient monitors. Having large corporations allows the government effectively to delegate some of its monitoring functions to the managers of the corporation. The tradeoff between this issue and the usual argument in favor of competition is considered.
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