The Optimal Combination of Corruption Reforms: Is a Comprehensive Approach a Good Idea?

Nobuo Yoshida
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Nobuo Yoshida: Boston University

No 1335, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: The earlier work on corruption reform often argues that a broader set of reforms be implemented. The main purpose of the paper is to examine the validity of this argument by formalizing the analysis of the interactions of procurement reforms. The model not only supports well-known interaction effects but also shows a new interaction effect: even if two reforms are substitute, they may be complementary if combined further with another reform. It also shows that it is optimal to carry out a reform alone in certain conditions although it is optimal to combine all reforms in other conditions. More specifically, we examine the single and combination effects of different kinds of possible reform policies: delegation (delegating authority on contracting with the firm to the agency), administrative reforms (improving the agency's monitoring ability), incentive reforms (introducing incentive contracts with the agency) and legal reforms (enhancing legal systems). The following is our results: i) Incentive reforms are anti-corruption policies while administrative reforms and delegation are corruption-accommodating policies, if they are implemented singly. ii) Incentive reforms are complementary to delegation but substitute with administrative reforms. iii) The substitution effect between incentive and administrative reforms disappears if they are further combined with delegation. It follows that if delegation is not costly to implement, it is optimal to combine all reform policies. On the other hand, if delegation is too costly to implement and administrative reforms are not costly, it is optimal to implement them singly. This paper has some implications for the optimal sequence of reforms. It can also account for the persistence and deepening of corruption in some societies over time even if those societies continue to implement optimal reform policy (combination).

Date: 2000-08-01
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