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Abstract:
Corrupt payoffs frequently involve multinational corporations operating alone or in consortia with local partners. The persistence of corruption involving such important economic actors suggests that their managers and owners believe that it is economically beneficial, in spite of the costs to host countries and the costs to the reputation of global businesses. To understand why the avoidance of corruption is an ethical issue for business one needs to understand, first, why it often appears to be a value-maximizing strategy. The paper thus first presents the business firm's justification for paying bribes to get business--a justification that depends both on a notion of the proper role of the business firm and on a claim of little or no harm to the country involved. Second, the paper critiques this position by isolating the costs of high-level corruption in developing and transitional economies. The paper next considers the ethical obligations of multinational businesses and their managers when they operate in a corrupt environment. Finally, acknowledging the free rider problems facing multinationals, the paper summarizes the international efforts currently underway to limit corruption and suggests some additional responses. It stresses the interaction between external constraints on business, such as international treaties, and the internal structures and policies of firms.

Abstract:
The effects of Bilateral Investment Treaties on FDI and the domestic business environment remain unexplored despite the proliferation of treaties over the past several years. This paper explores the objectives and possible consequences of BITs. Specifically, it asks whether BITs stimulate FDI flows to host countries, and if this relationship is conditional on the level of political risk in a country. We find a very weak relationship between BITs and FDI. Further, we find that rather than encouraging greater FDI in riskier environments, BITs only have a positive effect on FDI flows in countries with an already stable business environment. Overall, BITs seem to have little positive effect either on foreign investment or on outside investors' perception of the investment environment in low- and middle-income countries.

Abstract:
Honesty and trust affect the functioning of the state and the market, and, conversely, the quality of formal rules and institutions has an impact on interpersonal trust. This paper organizes and critiques research on the relationship between trust and government; it stresses the mutual interaction between trust and democracy and the impact of corruption. Given this context, the concluding section discusses the transition process in post-socialist countries, highlighting the tensions between interpersonal trust and trust in public institutions.

Abstract:
Constitutional takings protections, such as those in the Fifth Amendment of the United States Constitution, create a potential for state liability for changes in regulatory policy by governments. This Article critiques takings jurisprudence in the context of two infrastructure investment issues: the stranded cost problem facing United States utility industries, which has given rise to claims of compensation for deregulatory takings; and the development of standards to protect direct foreign investment in developing countries. In both contexts, traditional legal doctrines do not adequately provide for the type of remedy sought so courts are in need of standards to assist them in determining when a change in government regulation warrants recovery for investors.

After addressing the current state of United States takings jurisprudence, this Article outlines a constitutional takings doctrine that can be applied to these infrastructure investment issues both within and outside of the American context. Under the doctrine advanced in this Article, the government would be required to pay compensation whenever it takes resources as part of the process of producing public goods and services. This Article's analysis, however, supports a rebuttable presumption against compensation for losses connected with the overall implementation of a public policy. Property rights protection will not aid growth - nor will it sustain historical investment levels - if it encourages inefficient levels and types of investment.

In the American context, federal court review of public utility deregulatory takings claims should not entertain the strong property rights notions that some advance for purposes of encouraging infrastructure investment. Instead, this Article concludes that there is no reason for courts to depart from the distinct line of cases addressing public utility price regulation, in which courts routinely defer to regulators' decisions regarding compensation. The courts should treat the deregulation of public utilities as an exercise of government policymaking authority that generally does not require compensation of stranded costs under the United States Constitution. In a similar manner, officials in developing countries who are eager for foreign investment need to look far enough ahead to ask if the generous terms they are offering to investors will backfire in the future when citizens perceive the costs they must bear. Developing countries should be wary of incorporating too sweeping a set of property rights protections into constitutions, individual contracts, or investment treaties, especially if they are still in the process of developing effective state institutions.

Abstract:
Nation states can reduce the risks faced by infrastructure investors by establishing a background norm that limits the state's ability to undermine the profitability of infrastructure projects. This background norm would be an implicit term in every contract and would provide a kind of guarantee against certain types of state actions. A background norm in the constitutions of some developed states is a "takings clause" that requires the state to pay compensation when it "takes" property for public use. The application of takings jurisprudence to the field of infrastructure investment is the subject of this paper. The paper shows how infrastructure investors in developing countries face risks related to public sector activities. It then summarizes United States takings law, emphasizing its application to infrastructure industries. Next, it provides a principled way to think about government compensation and applies the framework to infrastructure industries and to developing countries trying to establish a credible legal framework for capital investment. The central policy analytic issues are the efficiency consequences of takings doctrine and the fairness of alternative rules.

Abstract:
For international aid and lending institutions: Encourage liberalization, deregulation, and civil service reform where rulers are autocratic but credibly committed to growth and efficiency. Be cautious about financing half-hearted reform in systems ruled by kleptocrats. In particular, do not expect tax, customs, and procurement reform to be implemented as designed in systems where top rulers and their allies routinely pocket state resources.

One explanation for Africa's failure to develop is the weakness of its public institutions. Coolidge and Rose-Ackerman consider one aspect of that weakness: rent-seeking and corruption at the top of government.

Under the conditions of their model, an autocrat who seeks to maximize personal financial return favors an inefficiently large public sector and distorts other public sector priorities more than does an autocrat who seeks to maximize national income. However, if civil servants and public officials are also venal, the ruler will not favor so large a government.

To show how African regimes operate, Coolidge and Rose-Ackerman present four cases illustrating issues raised by their theoretical model. Among their observations about the relationship between the motivations of top officials and policies to control corruption and other types of rent-seeking are these:

A kleptocrat whose decision variable is the level of government intervention in the economy will select an excessive level of intervention, in which national income is less than optimal.

Like all monopolists, the kleptocrat seeks productive efficiency except where inefficiency creates extra rents.

Facing a kleptocrat, citizens prefer a smaller than optimal-sized government but get one that is too big.

A kleptocrat may need to permit lower-level officials to share in corrupt gains thus introducing additional costs. He or she will then favor a smaller government than if subordinates could be perfectly controlled.

Dropping the assumption of a single dimension of government intervention, the kleptocrat will favor a different mixture of tax, spending, and regulatory programs than will a benevolent autocrat.

Dropping the assumption that rulers are writing on a clean slate, decisions to privatize or nationalize firms can differ across autocratic regimes. In particular, although kleptocrats will often be reluctant to privatize, they may in some cases support privatizations that a benevolent ruler would oppose.

Investment in countries with kleptocratic rules may have an overly short-run orientation.

When rent-seeking at top levels is pervasive, both natural resources and foreign aid under state control may hamper, not encourage, growth.

This paper - a product of the Private Sector Development Department, the Visiting Research Fellows Program, and the Foreign Investment Advisory Service - is part of a larger effort in the Bank to promote institutional reforms necessary for combating corruption and promoting investment and private sector led growth.

Abstract:
The OECD Anti-Bribery Convention charges States Parties with sanctioning overseas bribes paid by their firms. In late 2006 the British government, claiming an implicit national security exception, halted a bribery investigation directed at BAE Systems. This action raises the question of the nature of such exceptions in international law. Many treaties contain explicit national security exceptions. But can an implicit exception be read into all treaties? This article argues that it cannot. Customary international law does not contain a broad national security exception, and explicit national security exceptions take various forms tailored to the subject of the individual treaties. Thus, because explicit terms are not difficult to draft, if no explicit language exists, then a country that claims to be acting on grounds of national security is violating the treaty at issue, rather than exercising an exception that implicitly exists. Furthermore, even if one disagrees with that claim, most explicit national security exceptions are not open-ended and some include procedural limits. Constraints on even explicit exceptions ought to apply a fortiori to implicit exceptions. An implicit exception must be interpreted no more generously than clauses that have actually been incorporated into the language of treaties. Any other conclusion would lead to the anomalous result that the way to obtain a strong national security exception is not to mention the matter at all.

Abstract:
Much of Mancur Olson's work explored the link between government structure and economic development. This paper provides a framework for thinking about this link that exposes both the powerful insights and the deep tensions in Olson's work. In Olson argued that instability was good for democratic accountability because it upset entrenched interests. In contrast, after the fall of the socialist regimes in Europe and the Soviet Union, Olson argued that the stability of a single autocrat or "stationary bandit" was superior to the competitive rent seeking of competing "roving bandits." I argue that there is a real inconsistency in Olson's thinking on the role of stability and change in political life; I do this by developing the connections between Olson's classic and his subsequent writing. The paper concludes by building on Olson's insights to point the way to a more complete analysis of democracy and transition.

Abstract:
Government policymakers need to be accountable to citizens, but much government policymaking occurs in ministries that are imperfectly monitored and controlled by the popularly elected legislature. There are good reasons for such delegation, grounded in the expertise of officials and the scarce time of legislators, but the affirmative justifications for delegation do not vitiate the need for public officials to consult with the public and with organized civil society advocacy groups. This article argues that the new democracies of Central Europe have underemphasized this consultative aspect of the transition to democracy. To illustrate, it concentrates on the case of environmental policymaking in Hungary, one of the more advanced democracies in the region. A handful of voluntary civil society organizations play an important role, but the relative weakness of the organizational landscape and of the groups' legal rights to participate in policymaking limit their impact. The article proposes ways to strengthen the role of civil society advocacy groups in emerging democracies.

Abstract:
High levels of corruption limit investment and growth and lead to ineffective government. Developing countries and those making a transition from socialism are particularly at risk, but corruption is a worldwide phenomenon. Corruption creates inefficiencies and inequities, but reforms are possible to reduce the material benefits from payoffs. Corruption is not just an economic problem, however; it is also intertwined with politics. Reform may require changes in both constitutional structure and the underlying relationship of the market and the state. No single "blueprint" is possible, but the primary goal should be to reduce the gains from paying and receiving bribes, not simply to remove "bad apples."