Anti-Corruption in Regulation - A Safeguard for Infrastructure Reforms

One of the main objectives of reforms in infrastructure sectors, comprising deregulation, restructuring and private-sector participations, is the introduction of competition. In turn, effective regulation is one of the key elements for reform's success. But regulation is prone to corruption and capture by narrow interests. This paper, drawing on theory and the Colombian experience, provides an overview of potential corruption risks during regulation, and anti-corruption strategies which, in the end, have the objective to safeguard the objective of reforms. The paper starts with describing corrupt risks and proceeds discussing organizational aspects: decentralization, horizontal organization, and the issue of regulatory autonomy. Then three key factors are presented: incentives, institutions and information. Traditional incentive theory leads to contemplating control, rewards and sanctions. A new institutional approach taking into account the characteristics of corrupt deals leads to policies aiming at augmenting the transaction costs of corruption and fostering opportunism between corrupt partners. Finally, measures are discussed seeking to tackle the problem of information asymmetries between the different actors. However, there are no one-size-fits-all solutions, and a careful analysis of the actual situation must be the starting point for designing an adequate response to corruption risks.