Drivers of Corruption: A Brief Review by Tina Søreide

Author:Tina Søreide
Language: eng
Format: epub
Publisher: The World Bank
Published: 2014-08-15T00:00:00+00:00

Corrupt Market Players

There are similarities between individual whistle-blower reactions and the decisions of firms and organizations to react when they come across corruption committed by competitors or representatives of regulatory institutions. Firms, however, are less vulnerable to retaliation and less easily intimidated, and therefore it is a bit puzzling that firms generally have a low propensity to report, even when they are convinced that they have lost a contract because a competitor has paid a bribe. Wouldn’t they have a reason to react if a competitor could be punished—particularly if this could result in cleaner tenders? The puzzle must be understood in light of the different conditions and opportunities for a company to make a profit.48 In markets where the risk of corruption is high, antitrust oversight is generally weak and the options of profiting from cartel collaboration are significant. Such options may vanish for a firm that chooses to speak out about its competitors’ (that is, potential cartel members’) corruption, particularly because this would highlight corruption on the part of the procuring entity. Beyond that, the control and court systems may not be perceived as proactive and independent if corruption and collusion can go on with few, if any, consequences. Consequently, there would be no incentive for the firm to file a complaint.49

Instead of speaking out, the firm may benefit from combinations of corruption and other forms of offences. Lambert-Mogliansky (2011) explains how corruption and collusion are strategic complements: they generate more illegal rents for the firms involved if they combine the two, rather than use them separately. Susan Rose-Ackerman summarizes the argument as follows:

Instead of competing with each other in the level of bribe payments, firms may organize a cartel and pay off the procurement official to keep the collusive arrangement operating, giving him a share of the excess profits from the project. If a reform simply targets the payment of kickbacks, the official has less power to extort payoffs, but the firms can still collude to share the market. If corruption is attacked with no concern for collusion, there may be no social benefits from a crackdown. An anticorruption drive might simply make the cartel cheaper and more lucrative to organize, so that the firms still present a united front that forces the state to continue overpaying for public projects. (Rose-Ackerman and Søreide 2011, xvii)

The combination of corruption and collusion is challenging, particularly in civil law–based countries where different institutions are often mandated to investigate different forms of crime, instead of searching for combinations of such offences.50

Most of the relevant literature on firms’ propensity to speak out about their own and other market players’ crimes has focused on cartel behavior, and not corruption and collusion combined. Recently, a literature on leniency has emerged.51 A main finding is that leniency programs—defined as a set of rules for granting reductions in or elimination of penalties to firms or individuals who come forward with information about their involvement in crime (notably, reporting before the crime would have been revealed by

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