Vol. IX, No. 1, WINTER 1995

by Sophal EAR*

Institutions such as bribery and nepotism, falling under the rubric of patronage and patron-clientelism, have not died since Alain de Forest's bold assessment of their exaggerated demise. One can analyze this corruption as an additional cost to transac tions. High transaction costs are signs of imperfect markets and a classic example of market failures. How does one begin to eliminate such corruption?

Using a cost-benefit model of corruption, one can better see the policy implications for minimizing corruption.

Let B = Benefits of being corrupt

Let p = Probability of being caught and prosecuted

Let C = Cost of punishment for being corrupt

When the benefits to being corrupt "B" are greater than the probability of getting caught "p" times the punishment "C", then being corrupt will be rational:

B > p(C)

In other words, one will gain more from being corrupt than not. It is incentive compatible. Therefore, to logically minimize corruption implies an increase in the probability "p" and the punishment "C" of being "corrupt" in order to obtain the followin g condition:

B < p(C)

All of this simply means that one must change the acceptability of corrupt practices which have plagued Cambodia under Sihanouk, Lon Nol, and to this day. One needs supervisors who are themselves not corrupt. That is difficult without checks and balanc es.# Who supervises the supervisor, and then who supervises him/her?

In the end, God is the ultimate supervisor... (meta-supervising!). One also needs to have credible punishments: (1) courts and the rule of law, (2) large fines (greater than the bribe), and (3) if necessary, prison sentences.

#As a small aside, some of Cambodia's newspapers have vigorously attacked and exposed corrupt politicians and have paid dearly. The murder of journalists has alarmed the outside world. Unfortunately, instead of guaranteeing freedom of the press, that r ight may become irrevocably censored by a proposed Press Law.

* This is Sophal Ear's undergraduate Economics honors thesis. If you are interested in procuring a bounded copy of this 73-page thesis at cost ($10 including postage), please contact KHMER CONSCIENCE or Sophal directly at sophal@CSUA.Berkeley.EDU. The thesis can also be found at http://www.csua.berkeley.edu/~sophal for people with access to the web (internet).