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

Listed author(s):
  • Javier Núñez

    ()

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

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File URL: http://hdl.handle.net/10.1007/s11149-006-9020-x
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Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 31 (2007)
Issue (Month): 2 (April)
Pages: 209-233

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Handle: RePEc:kap:regeco:v:31:y:2007:i:2:p:209-233
DOI: 10.1007/s11149-006-9020-x
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/industrial+organization/journal/11149/PS2

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  1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, July.
  2. Maxwell, John W & Lyon, Thomas P & Hackett, Steven C, 2000. "Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 583-617, October.
  3. Polinsky, A. Mitchell & Shavell, Steven, 2001. "Corruption and optimal law enforcement," Journal of Public Economics, Elsevier, vol. 81(1), pages 1-24, July.
  4. Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
  5. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
  6. Jean Tirole, 1996. "A Theory of Collective Reputations (with applications to the persistence of corruption and to firm quality)," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 1-22.
  7. Nunez, Javier, 2001. "A model of self-regulation," Economics Letters, Elsevier, vol. 74(1), pages 91-97, December.
  8. Stefanadis, Christodoulos, 2003. "Self-Regulation, Innovation, and the Financial Industry," Journal of Regulatory Economics, Springer, vol. 23(1), pages 5-25, January.
  9. B. Bortolotti & G. Fiorentini, 1997. "Barriers to Entry and the Self-Regulating Profession," Working Papers 291, Dipartimento Scienze Economiche, Universita' di Bologna.
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