1 For a detailed analysis of the economic theories of regulation see, for example, J den Hertog, “Review of Economic Theories of Regulation” (2010) Utrecht School of Economics Tjalling C. Koopman Research Institute Discussion Paper Series 10-18 <www.uu.nl/sites/default/files/rebo_use_dp_2010_10-18.pdf> (last accessed 20 January 2020). See also Acemoglu, D and Verdier, T, “The Choice Between Market Failures and Corruption” (2000) 90 Am Econ Rev 194CrossRefGoogle Scholar; Williamson, OE, “Review of Markets or Governments: Choosing Between Imperfect Alternatives” (1989) 27 J Econ Lit 92Google Scholar.

2 That markets are far away from producing either economically optimal or socially desirable outcomes has been elaborated in a well-known and voluminous literature. The main justification for public policy intervention lies hence in the inadequacies of markets as measured against the criteria of “efficiency” and “distributional equity”. See, eg, Bator, FM, “The Anatomy of Market Failure” (1958) 72 Q J Econ 351CrossRefGoogle Scholar; Aranson, PH, “Theories of Economic Regulation: From Clarity to Confusion” (1990) 6 J Law Politics 247Google Scholar; Baron, DP, “Regulation and Legislative Choice” (1988) 19 RAND J Econ 467CrossRefGoogle Scholar; Barzel, Y, “Measurement Cost and the Organisation of Markets” (1982) 25 J Law Econ 27CrossRefGoogle Scholar; Vickers, J, “Government Regulatory Policy” (1991) 7 Ox Rev Econ Policy 13CrossRefGoogle Scholar.

3 Market outcomes can be termed efficient if the same level of total benefits which they generate cannot be obtained at a lower cost (productive efficiency) or, alternatively, if greater benefits cannot be generated at the same level of costs. Either way, the resulting total benefits must exceed total costs if the outcomes are to be deemed efficient. Distributional equity is a yardstick by which to examine the formulation, evaluation, and implementation of alternative public policies. The central question relates to the standard against which to evaluate distributional equity. In fact, answers can be different depending on how equity is interpreted (in the sense of equality of outcome or equality of opportunity, “horizontal” versus “vertical” equity, etc).

4 Particularly informative in that respect is the data collected by the World Bank. See, eg, World Bank, Governance and Development (World Bank 1992)Google Scholar; World Bank, Anticorruption in Transition: A Contribution to the Policy Debate (World Bank 2000)Google Scholar; World Bank, News and Broadcast: The Costs of Corruption (World Bank 2004)Google Scholar.

5 Becker, GS and Stigler, GJ, “Law Enforcement, Malfeasance, and Compensation of Enforcers” (1974) 3 J Leg Stud 1CrossRefGoogle Scholar.

6 Among those who tried to point out the difficulties associated with gauging corruption, see, eg, Shleifer, A and Vishny, RW, “Politicians and Firms” (1994) 109 Q J Econ 995CrossRefGoogle Scholar; Stiglitz, JE, Globalization and its Discontents (Penguin 2002)Google Scholar; Transparency International, About Corruption (2006); Tullock, G, “Controlling Corruption” (1989) 27 J Econ Lit 658Google Scholar.

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8 Cressey, D, Other People’s Money: A Study in the Social Psychology of Embezzlement (Free Press 1953)Google Scholar; Mauro, P, “Corruption and Growth” (1995) 110 Q J Econ 681CrossRefGoogle Scholar; McChesney, FS, “Rent Extraction and Rent Creation in the Economic Theory of Regulation” (1987) 16 J Leg Stud 101CrossRefGoogle Scholar; North, DC, “Beyond the New Economic History” (1974) 34 J Econ Hist 1CrossRefGoogle Scholar; North, DC, Institutions, Institutional Change and Economic Performance (Cambridge University Press 1990)CrossRefGoogle Scholar.

9 For some introduction to the issue of defining corruption see, eg, Philp, M, “Defining Political Corruption” (1997) 45 Political Stud 436CrossRefGoogle Scholar; Gardiner, J, “Defining Corruption” in Punch, M et al (eds), Coping with Corruption in a Borderless World (Kluwer 1993) p 21Google Scholar; Kurer, O, “Definitions of Corruption” in Heywood, PM (ed), Routledge Handbook of Political Corruption (Routledge 2014) p 83Google Scholar ff.

10 See, eg, C Brown et al, “Political Corruption and Firm Value in the US” (2018) J Bus Ethics <ssrn.com/abstract=3147385> (last accessed 20 January 2020); Dimant, E and Tosato, G, “Causes and Effects of Corruption: What Has Past Decade’s Empirical Research Taught Us? A Survey” (2017) 32 J Econ Surv 335CrossRefGoogle Scholar.

11 For its annual Corruption Perceptions Index (CPI), Transparency International referred to corruption as “the abuse of public office for private gains”. This notion is the same as that used by other agencies and organisations such as the World Bank. In other contexts, however, Transparency International used a more general definition, qualifying corruption as “the abuse of entrusted power for private gain”. In 2012, however, the definition for the purposes of the CPI has been changed and unified to the latter. Corruption refers to “the abuse of entrusted power for private gain. Corruption can be classified as grand, petty and political, depending on the amounts of money lost and the sector where it occurs”. See UNDP, Human Development Report: Deepening Democracy in a Fragmented World (OUP/UNDP 2002)Google Scholar; UNODCCP Global Dynamics of Corruption, the Role of the United Nations Helping Member States Build Integrity to Curb Corruption (Global Programme against Corruption Conferences, Vienna 2002)Google Scholar.

12 Shleifer, A and Vishny, RW, “Corruption” (1993) 108 Q J Econ 599CrossRefGoogle Scholar.

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16 Reinikka, R and Smith, N, Public Expenditure Tracking Surveys in Education (UNESCO International Institute for Educational Planning 2004) p 15Google Scholar. These measures of perceived corruption are subject to the bias of members of the sample, which might give partial explanation for the remarkably good performance of OECD countries despite the evidence that many of the highest value acts of fraud and corruption in fact occur in OECD countries.

17 Eskeland, GS and Thiele, H, Corruption Under Moral Hazard (Mimeo, World Bank 1999)CrossRefGoogle Scholar.

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19 See, eg, Stigler, GJ, “The Theory of Economic Regulation” (1971) 2 The Bell Journal of Economics and Management Science 3CrossRefGoogle Scholar.

20 Regulatory capture is a broad phenomenon referring to the situation where the State privileges commercial or political concerns of special interest groups that dominate the industry or sector over the public interest. Capture may be caused subtly through the provision of information, or so called “information capture”. The information imbalance between regulators and private actors, and the consequent dependency of the former on the latter, empowers industry to influence rules and standards, and tilts the outcome toward industry interests. Thus, as policy becomes more complex, and regulators become more dependent on industry, there is a higher likelihood that rules will be biased towards industry preferences. On the other hand, “representational capture” occurs when there is an imbalance in the representation of the competing interests, such as between commercial and public interests. In such cases, a regulator is at higher risk of adopting an industry-friendly point of view if the only people that it hears from, or primarily hears from, are industry members. For further elaboration upon regulatory capture, see eg Carpenter, D and Moss, DA, “New Conceptions of Capture – Mechanisms and Outcomes” in Carpenter, D and Moss, DA (eds), Preventing Regulatory Capture: Special Interest Influence and How to Limit It (Cambridge University Press 2014)Google Scholar; N McCarty, “Complexity, Capacity, and Capture” in Carpenter and Moss (eds), ibid.

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