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Mutual Supervision in Preshipment Inspection Programs

  • Grégoire ROTA-GRAZIOSI


    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Anne-Marie GEOURJON


    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Vianney DEQUIEDT


    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

Preshipment inspection programs are implemented in many developing countries to fight customs corruption. They consist in delegating the inspection of imports to a private firm that operates in the exporting country. To study those PSI programs, we develop a hierarchical agency model where the government authority can rely on two supervisors, namely the private inspection firm and the customs administration, to control importers' declarations. The government's optimal program is fully characterized. We devote some attention to the optimal inspection policy and its comparative statics properties. In particular, we identify the situations in which PSI programs are optimal. Our results highlight the fact that implementing PSI programs both to fight corruption and to modernize customs is inconsistent. We also discuss the optimal reconciliation policy, i.e. what to do in case of conflicting inspection reports by the private firm and the customs administration. In the optimal mechanism, mutual supervision between the private firm and the customs administration is used to provide adequate incentives to all parties.

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Paper provided by CERDI in its series Working Papers with number 200910.

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Length: 36
Date of creation: 2009
Date of revision:
Handle: RePEc:cdi:wpaper:1115
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  1. Kofman, F. & Lawarree, J., 1993. "On the Optimality of Allowing Collusion," Working Papers 93-02, University of Washington, Department of Economics.
  2. Hoekman , Bernard & Nicita, Alessandro, 2008. "Trade Policy, Trade Costs, and Developing Country Trade," Policy Research Working Paper Series 4797, The World Bank.
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  4. Fisman, Raymond & Wei, Shang-Jin, 2001. "Tax Rates and Tax Evasion: Evidence from 'Missing Imports' in China," CEPR Discussion Papers 3089, C.E.P.R. Discussion Papers.
  5. Ajit MISHRA & T.C.A. ANANT, 2005. "Activism, Separation of Powers and Development," Dundee Discussion Papers in Economics 179, Economic Studies, University of Dundee.
  6. 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.
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  10. Kofman, F. & Lawarree, J., 1990. "Collusion in Hierarchical Agency," Working Papers 91-01, University of Washington, Department of Economics.
  11. Dean Yang, 2008. "Can Enforcement Backfire? Crime Displacement in the Context of Customs Reform in the Philippines," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 1-14, February.
  12. 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.
  13. Mehmet Bac & Parimal Kanti Bag, 2005. "Beneficial Collusion in Corruption Control: The Case of Nonmonetary Penalties," School of Economics Discussion Papers 0205, School of Economics, University of Surrey.
  14. Kofman, F. & Lawarree, J., 1991. "A Prisoner's Dilemma Model of Collusion Deterrence," Working Papers 91-15, University of Washington, Department of Economics.
  15. Dean Yang, 2008. "Integrity for Hire: An Analysis of a Widespread Customs Reform," Journal of Law and Economics, University of Chicago Press, vol. 51(1), pages 25-57, 02.
  16. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, June.
  17. De Wulf, Luc, 1981. "Statistical analysis of under- and overinvoicing of imports," Journal of Development Economics, Elsevier, vol. 8(3), pages 303-323, June.
  18. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-41, January.
  19. Strausz, R.G., 1995. "Delegation of Monitoring in a Principal-Agent Relationship," Discussion Paper 1995-60, Tilburg University, Center for Economic Research.
  20. Johnson, Noel, 2001. "Committing to civil service reform : the performance of pre-shipment inspection under different institutional regimes," Policy Research Working Paper Series 2594, The World Bank.
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