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Privatization and Changes in Corruption Patterns: The Roots of Public Discontent

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Author Info
David Martimort
Stephane Straub ()

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Abstract

This paper offers a theory of how the degree of corruption that prevails in a society responds to changes in the ownership structure of major public service providers. We show that there are cases in which privatization, even though it fosters investments in infrastructure, also opens the door to more corruption. The public dissatisfaction towards privatization is then crucially affected by the changes in the degree and pattern of corruption. Our model thus helps understand the seemingly paradoxical situation prevailing in Latin America, where most studies find that privatizations have been efficiency-enhancing and have fostered investments and, at the same time, popular dissatisfaction with the process is extremely high, especially among the middle class. We show that this line of explanation is supported by evidence from surveys in the region.

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 147.

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Length: 39
Date of creation: Dec 2006
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Handle: RePEc:edn:esedps:147

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Steven Barnett & Jeffrey M. Davis & Rolando Ossowski & Thomas J. Richardson, 2000. "Fiscal and Macroeconomic Impact of Privatization," IMF Occasional Papers 194, International Monetary Fund.
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  5. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
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  7. Janos Kornai & Eric Maskin & Gerard Roland, 2003. "Understanding the Soft Budget Constraint," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1095-1136, December.
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  8. Hoff, Karla & Stiglitz, Joseph E., 2005. "The creation of the rule of law and the legitimacy of property rights : the political and economic consequences of a corrupt privatization," Policy Research Working Paper Series 3779, The World Bank. [Downloadable!]
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  9. Schmidt, Klaus M, 1996. "The Costs and Benefits of Privatization: An Incomplete Contracts Approach," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 1-24, April.
  10. Dal Bo, Ernesto & Rossi, Martin A., 2007. "Corruption and inefficiency: Theory and evidence from electric utilities," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 939-962, June. [Downloadable!] (restricted)
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  13. Guasch, J. Luis & Laffont, Jean-Jacques & Straub, Stephane, 2003. "Renegotiation of concession contracts in Latin America," Policy Research Working Paper Series 3011, The World Bank. [Downloadable!]
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  14. Dilip Mookherjee & David McKenzie, 2001. "The Distributive Impact of Privatization in Latin America: Evidence from Four Countries," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-128, Boston University - Department of Economics, revised 2002. [Downloadable!]
  15. Ilya R. Segal, 1998. "Monopoly and Soft Budget Constraint," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 596-609, Autumn. [Downloadable!] (restricted)
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  17. Gupta, Nandini & Ham, Jhon C. & Svejnar, Jan, 2008. "Priorities and sequencing in privatization: Evidence from Czech firm panel data," European Economic Review, Elsevier, vol. 52(2), pages 183-208, February. [Downloadable!] (restricted)
  18. Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Blackwell Publishing, vol. 62(4), pages 541-55, October. [Downloadable!] (restricted)
  19. Sebastian Galiani & Paul Gertler & Ernesto Schargrodsky, 2005. "Water for Life: The Impact of the Privatization of Water Services on Child Mortality," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 83-120, February.
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  21. Antoine Faure-Grimaud & Jean-Jacques Laffont & David Martimort, 2003. "Risk Averse Supervisors and the Efficiency of Collusion," The B.E. Journal of Theoretical Economics, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
  22. Tirole, Jean, 1991. "Collusion and the Theory of Organizations," IDEI Working Papers 9, Institut d'Économie Industrielle (IDEI), Toulouse.
  23. Coate, Stephen & Morris, Stephen, 1995. "On the Form of Transfers in Special Interests," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1210-35, December. [Downloadable!] (restricted)
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  26. 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. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Athias, Laure & Nunez, Antonio, 2008. "The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions," MPRA Paper 10539, University Library of Munich, Germany. [Downloadable!]
  2. Athias, Laure & Saussier, Stéphane, 2007. "Contractual flexibility or rigidity for public private partnerships? Theory and evidence from infrastructure concession contracts," MPRA Paper 10541, University Library of Munich, Germany. [Downloadable!]
  3. Stephane Straub, 2008. "Infrastructure and Growth in Developing Countries: Recent Advances and Research Challenges," ESE Discussion Papers 179, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
    Other versions:
  4. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," CEIS Research Paper 139, Tor Vergata University, CEIS, revised 19 Dec 2008. [Downloadable!]
    Other versions:
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