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Enforcement, Regulation and Development

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  • Jean-Jacques Laffont

Abstract

After discussing examples of enforcement failures for regulatory contracts in Africa, we develop a regulation model with asymmetric information and imperfect enforcement. Either the regulator succeeds in forcing the regulated firm to fulfill the contract or renegotiation takes place. The probability of renegotiation decreases with the level of enforcement expenditures which is chosen by the regulator. The model suggests that the endogenous level of enforcement decreases with the proneness to corruption, and increases and then decreases with the level of development. Finally, we document this relationship empirically. Copyright 2003, Oxford University Press.

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Bibliographic Info

Article provided by Centre for the Study of African Economies (CSAE) in its journal Journal of African Economies.

Volume (Year): 12 (2003)
Issue (Month): Supplement 2 (September)
Pages: 193-211

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Handle: RePEc:oup:jafrec:v:12:y:2003:i:supp2:p:193-211

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References

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  1. Stefan Krasa & Anne P. Villamil, 2000. "Optimal Contracts when Enforcement Is a Decision Variable," Econometrica, Econometric Society, vol. 68(1), pages 119-134, January.
  2. A. Meltzer & Peter Ordeshook & Thomas Romer, 1983. "Introduction," Public Choice, Springer, vol. 41(1), pages 1-5, January.
  3. Cremer, H. & Marchand, M. & Pestieau, P., 1988. "Evading, Auditing And Taxing: The Equity-Compliance Tradeoff," Papers 401, Cornell - Department of Economics.
  4. Border, Kim C & Sobel, Joel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 525-40, October.
  5. Stigler, George J, 1970. "The Optimum Enforcement of Laws," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 526-36, May-June.
  6. Khalil, F., 1992. "Auditing Without Commitment," Discussion Papers in Economics at the University of Washington 92-15, Department of Economics at the University of Washington.
  7. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  8. Janusz A. Ordover & Russell W. Pittman & Paul Clyde, 1994. "Competition policy for natural monopolies in a developing market economy 1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(3), pages 317-343, 09.
  9. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
  10. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1999. "Corruption, public finances, and the unofficial economy," Policy Research Working Paper Series 2169, The World Bank.
  11. Jean-Jacques LAFFONT & Jean TIROLE, 1992. "Cost Padding, Auditing and Collusion," Annales d'Economie et de Statistique, ENSAE, issue 25-26, pages 205-226.
  12. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-98, July.
  13. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 647-63, October.
  14. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
  15. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Privatization and Incentives," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 84-105, Special I.
  16. A. P. Thirlwall, 1983. "Introduction," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 5(3), pages 341-344, April.
  17. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
  18. Helmut Bester & Roland Strausz, . "Imperfect Commitment and the Revelation Principle," Papers 004, Departmental Working Papers.
  19. Khalil, F., 1992. "Auditing Without Commitment," Working Papers 92-15, University of Washington, Department of Economics.
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Citations

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Cited by:
  1. Gustavo Ferro & Omar Chisari, 2010. "Tópicos de Economía de la Regulación de los Servicios Públicos," Working Papers hal-00473038, HAL.
  2. Auriol, Emmanuelle & Blanc, Aymeric, 2009. "Capture and corruption in public utilities: The cases of water and electricity in Sub-Saharan Africa," Utilities Policy, Elsevier, vol. 17(2), pages 203-216, June.
  3. J. Luis Guasch & Jean-Jacques Laffont & Stephane Straub, 2004. "Renegotiation of Concession Contracts in Latin America," ESE Discussion Papers 103, Edinburgh School of Economics, University of Edinburgh.
  4. Jean-Jacques Laffont, 2004. "Management of Public Utilities in China," Annals of Economics and Finance, Society for AEF, vol. 5(2), pages 185-210, November.
  5. David Bardey & Ramón Castaño, 2007. "La regulación de tarifas en el sector de la salud en Colombia," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 9(17), pages 347-357, July-Dece.
  6. Auriol, Emmanuelle & Picard, Pierre M., 2006. "Infrastructure and public utilities privatization in developing countries," Policy Research Working Paper Series 3950, The World Bank.
  7. Jellal, Mohamed, 2014. "Modern regulation of firms in developing countries," MPRA Paper 57207, University Library of Munich, Germany.
  8. Laffont, Jean-Jacques, 2003. "Incentives and the Search for Unknown Resources such as Water," IDEI Working Papers 2, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Auriol, Emmanuelle & Picard, Pierre, 2004. "Privatizations in Developing Countries and the Government's Budget Constraint," IDEI Working Papers 459, Institut d'Économie Industrielle (IDEI), Toulouse.

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