The paper explores the best ways to avoid the corruption of law enforcers through compensation policies. The paper outlines different scenarios in a made-up setting where a law enforcer has to check on the levels of pollution produced by a factory. Given a threshold of pollution that the factory should not surpass, the authors demonstrate that in order to reduce corruption and the levels of pollution, compensation policies have to be enforced. The best means to counteract scenarios where bribing is profitable both for the inspector and for the factory is to create a situation for which prizes for reporting or fining are more profitable for the inspector. The paper, published in 1995, is clearly inscribed in the free-market and competition economic theory which entails a specific model of economic transactions and thus of measures to counter corruption.
The Economic Journal