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J Af Eco 2003; 12:ii193-ii211
© 2003 Centre for the Study of African Economies

Article

Enforcement, Regulation and Development

Jean-Jacques Laffont

IDEI and ARQADE, Université des Sciences Sociales, Toulouse

Abstract

After discussing examples of enforcement failures for regulatory contracts in Africa, we develop a regulation model with asymmetric information and imperfect enforcement. Either the regulator succeeds in forcing the regulated firm to fulfill the contract or renegotiation takes place. The probability of renegotiation decreases with the level of enforcement expenditures which is chosen by the regulator. The model suggests that the endogenous level of enforcement decreases with the proneness to corruption, and increases and then decreases with the level of development. Finally, we document this relationship empirically.


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