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See detailWhat Transparency Can Do When Incentives Fail: An Analysis of Rent Capture
Dabla-Norris, Era; Paul, Elisabeth ULg

in IMF Working Paper (2006), 06/146

This paper analyzes the pervasiveness and persistence of rent seeking, misgovernance, and public sector inefficiency in many developing and transition economies. We formalize evidence from country ... [more ▼]

This paper analyzes the pervasiveness and persistence of rent seeking, misgovernance, and public sector inefficiency in many developing and transition economies. We formalize evidence from country experiences and empirical studies into a stylized analytical framework that reflects realistic constraints faced in these countries. Our work departs from the standard economic literature by assuming that (i) the relationship between the government and its population is regulated through an implicit social consensus; (ii) traditional incentives (in the form of public expenditure controls, sanctions, or monetary incentives to perform) are, for various reasons, ineffective in many of these countries; and (iii) the persistence of high corruption reflects a very stable equilibrium, which in turn reflects the fact that several constraints are simultaneously binding. We argue that, when traditional incentives fail, transparency—information provision and disclosure, together with the means to use it—by relaxing different constraints, can contribute to improving public outcomes. [less ▲]

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See detailA Principal-Agent Theory Approach to Public Expenditure Management Systems in Developing Countries
Leruth, Luc ULg; Paul, Elisabeth ULg

in IMF Working Paper (2006), 06/204

A well-functioning public expenditure management (PEM) system is considered a critical pillar of government efficiency, on par with a low-distortion tax system and efficient tax administration. The paper ... [more ▼]

A well-functioning public expenditure management (PEM) system is considered a critical pillar of government efficiency, on par with a low-distortion tax system and efficient tax administration. The paper discusses PEM systems in developing countries using an analytical framework based on principal-agent theory. This simple model can be applied to various PEM systems, and allows for comparisons between institutional settings. To illustrate this, we analyze the benefits derived from the use by the Ministry of Finance (MoF) of two control instruments; ex post audits and ex ante controls, and assess their value in terms of their ability to deter cheating. We derive a set of possible “control regimes” which can be used by the MoF. Although we illustrate the use of the model using developing countries, it is also relevant to developed economies. [less ▲]

Detailed reference viewed: 43 (4 ULg)