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Regulatory Ambiguity and Corruption

Herk, Leonard F.

Corruption "in the fabric" of a regulatory system refers to a situation in which a regulatory agency seeks to extract rents for itself by interpreting and enforcing its statutory authority in an ambiguous manner. Regulatory ambiguity is associated with the creation of superfluous and apparently random loopholes which affect private agents under circumstances which are difficult to predict, and hence hard to avoid. This paper examines the role of regulatory authority by means of a model in which the regulatory authority extracts a fee for enforcing or voiding private agreements, in light of circumstances which have occurred after the agreement was formed, according to a system of rules which can be either ambiguous or clear.

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Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 760
Published Here
March 2, 2011

Notes

October 1995