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Committing to civil service reform : the performance of pre-shipment inspection under different institutional regimes

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  • Johnson, Noel

Abstract

If the only solution tried for customs corruption and evasion in a developing country is to outsource certain customs functions to a pre-shipment inspection (PSI) company, PSI will prove more of a fiscal burden than a panacea. PSI works best in countries where the customs service already performs fairly well-by reducing the costs of catching evaders. Typically a developing country's customs service brings in a large share of its revenues and accounts for an even larger share of its corruption. One prescription popular among development agencies for reducing corruption and customs evasion by importers has been to outsource certain customs functions to pre-shipment inspection (PSI) companies. More than 35 countries employ PSI as a second-best solution to corruption in customs collection. But whether PSI companies are an effective alternative to comprehensive civil service reform has been widely questioned. The success of PSI contracts depends on the institutional environment-the formal and informal rules of enforcement that affect different agents'incentives-but the reasons for PSI's success or failure in different institutional settings have not been well understood. Johnson presents a simple model highlighting the principal-agent problems in a typical PSI contract. Based on his conclusions, he suggests that PSI should be thought of less as a second-best alternative to customs reform (in countries where the customs service performs poorly) than as a cost-effective complement to reforms in"intermediate"cases (countries where the customs service already performs fairly well). PSI could help in these intermediate cases by reducing the costs of catching evaders. This would make it easier for the ministry of finance to maintain separate reforms to eliminate corruption between customs and importers. In countries where the customs service is powerful-ishighly independent and controls the country's borders-and where the government does not have the institutional ability to put through the complementary reforms essential for using PSI successfully, introducing a PSI contract will add to the burdens of public finance rather than provide the hoped-for panacea.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2594.

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Date of creation: 19 Apr 2001
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Handle: RePEc:wbk:wbrwps:2594

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Related research

Keywords: Export Competitiveness; Trade Finance and Investment; Decentralization; Public Sector Economics&Finance; Legal Institutions of the Market Economy; Public Sector Economics&Finance; Trade and Regional Integration; Multi Modal Transport; Legal Institutions of the Market Economy; Judicial System Reform;

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Cited by:
  1. Anson Jose & Cadot Olivier & Olarreaga Marcelo, 2006. "Tariff Evasion and Customs Corruption: Does Pre-Shipment Inspection Help?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-26, December.
  2. Anson, José & Cadot, Olivier & Olarreaga, Marcelo, 2003. "Tariff Evasion and Customs Corruption: Does PSI Help?," CEPR Discussion Papers 4167, C.E.P.R. Discussion Papers.
  3. Raballand, Gael & Marteau, Jean-François & Mjekiqi, Edmond & Cantens, Thomas, 2009. "Could a well-designed customs reforms remove the trade-off between revenue collection and trade facilitation?," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 28, Verein für Socialpolitik, Research Committee Development Economics.
  4. Vianney Dequiedt & Anne-Marie Geourjon & Grégoire Rota-Graziosi, 2011. "Contrats Incitatifs et Réforme des Douanes dans les PED : une Application des Modèles d'Agence Hiérarchique," Working Papers halshs-00554331, HAL.
  5. Velea, Irina & Cadot, Olivier & Wilson, John S., 2010. "Do private inspection programs affect trade facilitation ?," Policy Research Working Paper Series 5515, The World Bank.
  6. Dequiedt, V. & Geourjon, A.-M. & Rota-Graziosi, G., 2012. "Mutual supervision in preshipment inspection programs," Journal of Development Economics, Elsevier, vol. 99(2), pages 282-291.

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