## **Box II A Pilot Survey of Utilities Corruption**

To date, utilities have been excluded from firm surveys on corruption because of the small number of such firms operating in each country.By working with a global sample covering energy, water, telecoms and transport, a survey piloted in two countries in 2007 was designed to overcome this problem while generating data on the nature and extent of corruption. During the pilot, a considerable number of firms were willing to take part and answer sensitive questions in a manner that did not suggest reticence to highlight cases of corruption under these circumstances. Nonetheless, because all pilot survey conversations were conducted with promises of strict anonymity and confidentiality, only a very limited report of the actual results of the interviews can be presented at this stage.

Many of the firms claim that they have probably lost a tender because of corruption. In one of the pilot countries, it was repeatedly alleged that competitive tender procedures were rigged to fit with the offer of one specific firm and collusion was rampant. In the other pilot country, it was alleged that the initial contract competition might be fair, but the winning bidder would corrupt officials in order to avoid penalties for non-delivery of services. Firms do not report or complain about alleged cases of corruption for fear of losing future business.

# **4 Determinants of Corruption and Economic Theory**

The complexity of society, the number of stakeholders and actors involved in political and important bureaucratic decisions suggest numerous potential determinants of corruption.<sup>10</sup> Even when concentrating on grand corruption and contracts between utility firms and government, the number of relevant factors is substantial. A firm’s propensity to be involved in corruption to obtain a certain contract will depend on the following characteristics:

- i. _Personal characteristics of involved agents_ including (potentially) the nationality and gender of main management.

- ii. _Firm specific characteristics:_ company size, local or foreign ownership, location of headquarters, ownership structure and role in lobbying efforts.

- iii. _Deal characteristics:_ the tender offer process, prices and other terms. It is important to note that a purpose of the corrupt act itself may often be to influence the nature of the transacting process; i.e. what the particular transaction involves (the investing opportunity, the form of contract, the nature of the bid process, information available). As such, the relationship between particular deal characteristics and corrupt activities will be bi-directional.

- iv. _Sector characteristics:_ general cross-country factors including technical complexity, financing scale, common contract characteristics and so on. Some sector characteristics will be highly dependent on country, however, such as the existing extent of competition, standard selection procedures, sector ownership criteria, regulatory institutions (their capacity and independence), and the perceived extent of corruption in the sector.

> 10 This has been tested in many statistical studies during the last decade. Examples of recent contributions with very different focus are Mocan (2004), Glaeser and Saks (2005), Knack and Azfar (2002) and Treisman (2000). Most statistical studies of corruption are based on weak data on corruption, as discussed in chapter 2, and findings are not necessarily valid despite significant results.

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