Competition and corruption in an agency relationship

The paper reconsiders the relationship between competition and corruption in a model, where corruption has solid informational foundations and where the regulatory response to the possibility of corruption is taken into account. It is shown that the effect of greater competition on corruption depends on the complementarity or substitutability of the two instruments available to decrease information rents, namely low powered incentives and greater competition. The paper concludes with a brief empirical exploration of the relationship between competitiveness and corruption on African data. (C) 1999 Elsevier Science B.V. All rights reserved.