Can self regulation work?: a story of corruption, impunity and cover-up

Javier Nunez

Journal of Regulatory Economics, 2007, vol. 31, issue 2, 209-233

Abstract: This paper analyzes the reputation-based incentives of a Self-Regulatory Organization (SRO) to detect and expose consumer fraud committed by its members, and the members’ incentives to bribe the SRO in exchange for a cover-up to avoid an external punishment. In a corruption-free benchmark, SROs are effective in detecting, exposing and deterring fraud only if exposure yields a reputation gain to the SRO, which depends on consumers inferences about the SRO’s type. However, if this case prevails the member can succeed in bribing the SRO in exchange for a cover-up and impunity. Despite this, a bribed SRO yields more vigilance and lower fraud than no self-regulation at all. Copyright Springer Science+Business Media, LLC 2007

Keywords: Self-Regulation; Fraud; Corruption; Bribery; L51; K20 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:regeco:v:31:y:2007:i:2:p:209-233

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DOI: 10.1007/s11149-006-9020-x

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