Corrupt incentives exist because state officials have the power to allocate scarce benefits and impose onerous costs. Because scarcity lies at the heart of corrupt deals, basic insights derived from microeconomics can help structure efforts to reduce corruption. This chapter and the next focus on incentive-based reforms that reduce the benefits or increase the costs of malfeasance. This chapter considers the following reform options:

• program elimination,

• privatization,

• reform of public programs,

• administrative reform,

• the deterrent effect of anticorruption laws, and

• procurement systems.

Program Elimination

The most straightforward way to limit corruption is to eliminate corruption-laden programs. If the state has no authority to restrict exports or license businesses, this eliminates a source of bribes. If a subsidy program is eliminated, the bribes that accompanied it will disappear as well. If price controls are lifted, market prices will express scarcity values. In general, reforms that increase the competitiveness of the economy will help reduce corrupt incentives (Ades and Di Telia 1995,1997b: 514).

Some public programs work so poorly that they function principally as bribe-generating machines for officials. Structures that allow officials unfettered discretion are particularly likely sources of payoffs, especially if citizens and firms have no recourse. In such cases program elimination is sometimes better than more subtle reform strategies. For example, the licenses and permissions needed to set up businesses and continue them in operation may have no sound policy justification.