competitive environment, free of state financing, and with adequate governance safeguards may or may not emerge from privatization.

_Increasing the Probability of Paying Penalties:_<sup>_6_</sup> Increasing the probability of penalties is a three step process: detection, prosecution, and exacting the penalty. In cases where corruption is extortion for jobs that should be done as a matter of public service, improved detection is straight-forward - increase citizen participation in the electoral process, establish citizens' charters specifying expected service standards, allow media independence, make interactions between the public and private sectors more transparent, and strengthen the rule of law so that both individuals and the media do not fear reprisals. _Increasing the Magnitude of Penalties:_ There are corrupt societies which have stiff penalties for corruption, suggesting the magnitude of penalties may not be a strong deterrent to corruption. In general, people may not respond much differently to, say, an increase in penalties from five to ten years in prison, as Malaysia did in 1997 with no discernible change in perceptions of corruption (as measured by Transparency International). In some countries, however, the legislation setting penalties may be ambiguous or penalties may be set at the discretion of judges. In either case, a country may discourage corruption by clarifying corruption penalties. While the Bank may provide assistance in clarifying legislation, setting criminal penalties is outside the scope of its work.

In cases where corruption is in the form of bribes to alter the normal course of government, increased transparency of government operations reduces the opportunity for undetected corruption (e.g. clearly defined bidding processes, open judicial proceedings, strict rules on gift-giving) and increasing the number of competitors reduces the potential gains while increasing scrutiny of bidding processes. Prosecution requires judicial independence and transparency. For the judicial system to exact penalties, it must have sufficient resources and independence. To the extent that penalties are reputational, media independence is a crucial element to deterrence.

While a more complete treatment would include the incentives of private sector agents who interact with public officials, policies affecting private sector incentives are largely outside the scope of Bank work. Policies which increase the magnitude of penalties or the expected probability of paying penalties, however, are likely to have similar effects on the private sector as they do on the public sector. The focus on public officials excludes consideration of policies, typically in countries with low levels of corruption, that penalize private sector efforts to participate in corruption in other countries. These policies are potentially relevant to anti-corruption efforts, but are outside the scope of our framework (and most Bank work). In terms of domestic policies, we believe that the

> **6** There may also be losses that occur.with certainty, for example, if an official has to "buy" a position that offers potentially large gains from corrupt actitivities. While this type of situation should not affect the officials cost-benefit analysis (since the price paid for the position is a sunk cost), it does raise an equity issue. In cases where endemic corruption has led to a traditional of buying public positions, serious anticorruption efforts could, conceivably, include partial compensation for current office holders (declining in value with tenure). In practice, such a system is likely to be too prone to abuse to be feasible.

> ' For example, countries such as China and Vietnam, which are perceived to have relatively high levels of corruption, have sentenced people to death for graft.

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