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Enforcement, Regulation and Development

  • Jean-Jacques Laffont

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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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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  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. Jean-Jacques Laffont & Jean Tirole, 1991. "Cost Padding, Auditing and Collusion," Working papers 571, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Janusz Ordover & Russell Pittman & Paul Clyde, 2001. "Competition Policy for Natural Monopolies in a Developing Market Economy," Industrial Organization 0111004, EconWPA.
  4. Helmut Bester & Roland Strausz, . "Imperfect Commitment and the Revelation Principle," Papers 004, Departmental Working Papers.
  5. 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.
  6. Jean-Jacques Laffont & Jean Tirole, 1991. "Privatization and Incentives," Working papers 572, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
  8. 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.
  9. A. Meltzer & Peter Ordeshook & Thomas Romer, 1983. "Introduction," Public Choice, Springer, vol. 41(1), pages 1-5, January.
  10. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  11. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1999. "Corruption, public finances, and the unofficial economy," Policy Research Working Paper Series 2169, The World Bank.
  12. Cremer, H. & Marchand, M. & Pestieau, P., 1988. "Evading, auditing and taxing: the equity-compliance tradeoff," CORE Discussion Papers 1988027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. 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.
  14. George J. Stigler, 1974. "The Optimum Enforcement of Laws," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 55-67 National Bureau of Economic Research, Inc.
  15. A. P. Thirlwall, 1983. "Introduction," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 5(3), pages 341-344, April.
  16. 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.
  17. Khalil, F., 1992. "Auditing Without Commitment," Working Papers 92-15, University of Washington, Department of Economics.
  18. 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.
  19. 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.
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