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


  • 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

Suggested Citation

  • Javier Núñez, 2007. "Can self regulation work?: a story of corruption, impunity and cover-up," Journal of Regulatory Economics, Springer, vol. 31(2), pages 209-233, April.
  • Handle: RePEc:kap:regeco:v:31:y:2007:i:2:p:209-233
    DOI: 10.1007/s11149-006-9020-x

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    References listed on IDEAS

    1. 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.
    2. Polinsky, A. Mitchell & Shavell, Steven, 2001. "Corruption and optimal law enforcement," Journal of Public Economics, Elsevier, vol. 81(1), pages 1-24, July.
    3. Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
    4. 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.
    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. Stefanadis, Christodoulos, 2003. "Self-Regulation, Innovation, and the Financial Industry," Journal of Regulatory Economics, Springer, vol. 23(1), pages 5-25, January.
    7. B. Bortolotti & G. Fiorentini, 1997. "Barriers to Entry and the Self-Regulating Profession," Working Papers 291, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    9. Nunez, Javier, 2001. "A model of self-regulation," Economics Letters, Elsevier, vol. 74(1), pages 91-97, December.
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    Cited by:

    1. Silvester Van Koten & Andreas Ortmann, 2013. "Self-regulating organizations under the shadow of governmental oversight: An experimental investigation," Discussion Papers 2013-13, School of Economics, The University of New South Wales.
    2. repec:eme:rexezz:s0193-230620160000019003 is not listed on IDEAS
    3. Rouvière, Elodie & Caswell, Julie A., 2012. "From punishment to prevention: A French case study of the introduction of co-regulation in enforcing food safety," Food Policy, Elsevier, vol. 37(3), pages 246-254.
    4. Silvester Van Koten & Andreas Ortmann, 2016. "Self-Regulatory Organizations under the Shadow of Governmental Oversight: An Experimental Investigation," Research in Experimental Economics,in: Experiments in Organizational Economics, volume 19, pages 85-104 Emerald Publishing Ltd.
    5. Silvester Van Koten, 2015. "Self-Regulatory Organizations Under the Shadow of Governmental Oversight: Blossom Or Perish?," RSCAS Working Papers 2015/84, European University Institute.
    6. Karlaganis, Corinne, 2014. "Governance Challenges in Linking Environmental Sustainability to Tourism: Where is the Houseboat Industry in Kerala, India Headed?," Papers 711, World Trade Institute.
    7. Jan Mei Soon & Richard N. Baines, 2013. "Public and Private Food Safety Standards: Facilitating or Frustrating Fresh Produce Growers?," Laws, MDPI, Open Access Journal, vol. 2(1), pages 1-19, January.
    8. repec:eee:touman:v:37:y:2013:i:c:p:203-209 is not listed on IDEAS

    More about this item


    Self-Regulation; Fraud; Corruption; Bribery; L51; K20;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • K20 - Law and Economics - - Regulation and Business Law - - - General


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