What Transparency Can Do When Incentives Fail: An Analysis of Rent Capture

IMF Working Papers, June 1, 2006

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This paper analyzes the pervasiveness and persistence of rent seeking, misgovernance, and public sector inefficiency in many developing and transition economies.
The authors formalize evidence from country experiences and empirical studies into a stylized analytical framework that reflects realistic constraints faced in these countries.
The paper departs from the standard economic literature by focusing on situations where traditional incentives are ineffective and corruption persists as a stable equilibrium.
Key argument: 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.

The relationship between the government and its population is regulated through an implicit social consensus.
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.
The persistence of high corruption reflects a very stable equilibrium, which in turn reflects the fact that several constraints are simultaneously binding.
The framework formalizes country evidence and empirical studies into a stylized analytical model reflecting realistic constraints.

Rent seeking, misgovernance, and public sector inefficiency are pervasive and persistent in many developing and transition economies.
High corruption can constitute a very stable equilibrium due to multiple simultaneously binding constraints.
Traditional incentive mechanisms often fail to improve public outcomes in these contexts.

Transparency—information provision and disclosure—can play a constructive role when traditional incentives fail.
Transparency needs to be paired with the means to use disclosed information, which requires relaxing different binding constraints to make disclosure effective.
Improving public outcomes requires both disclosure and enabling mechanisms that allow actors (citizens, oversight bodies, media, civil service) to act upon the disclosed information.

Source: What Transparency Can Do When Incentives Fail: An Analysis of Rent Capture; Elisabeth Paul; Era Dabla-Norris.

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