Can self regulation work?: a story of corruption,impunity and cover-up |
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Authors: | Javier Núñez |
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Institution: | (1) Department of Economics, Universidad de Chile, Diagonal Paraguay 257, Santiago, Chile |
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Abstract: | This paper analyzes the reputation-based incentives of a Self-Regulatory Organization (SRO) to detect and expose consumer
fraud committed by its members, and the members’ incentives to bribe the SRO in exchange for a cover-up to avoid an external
punishment. In a corruption-free benchmark, SROs are effective in detecting, exposing and deterring fraud only if exposure
yields a reputation gain to the SRO, which depends on consumers inferences about the SRO’s type. However, if this case prevails
the member can succeed in bribing the SRO in exchange for a cover-up and impunity. Despite this, a bribed SRO yields more
vigilance and lower fraud than no self-regulation at all.
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Keywords: | Self-Regulation Fraud Corruption Bribery |
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