23 are Reinikka and Svensson (2002), which shows that corruption damages the performance of public services; and Svensson (2003), which shows that the lower the competition, the higher the bribes paid to public officials.

Clearly, a lot more work needs to be done. The additional work is particularly important because there seems to be evidence from the more general empirical literature that occasionally corruption has had unexpected effects. Ignoring the crucial ethic issues, while some of the econometric studies shows the damage done by corruption in general in the sector, some also shows that under very specific circumstance, it has positive effects on some performance indicators. For instance, Mauro (1997) and Tanzi and Davoodi (1997) find opposite signs on the effect of corruption on public spending: Mauro argues that it raises it, while Tanzi and Davoodi argue that it lowers it. Both results could easily be justified and consistent with different samples. Corruption may raise unit costs and hence increase spending for a given set of projects. But under budget constraints this may reduce the number of projects—and because projects are lumpy, it may ultimately decrease spending in the sector.

Another puzzling finding comes from Rock and Bonnett (2004). They show that while in most regions corruption has the expected negative effects, in large East Asian countries with governments with long time horizons, corruption has had positive short- to medium-term effects on growth thanks to collusion between governments and their big business partners. But Rock and Bennett also point out that it is not clear that the investment choices associated with corruption in these countries are the right ones for long-term growth since they cater to the preferences of local businesses.

Laffont and Meleu (1999) and Laffont (2004) provide another puzzling story on the effects of corruption. They point to a U-shaped effect of corruption on the privatization rate in Africa. That is, up to a point, corruption facilitates privatization—but eventually it hurts it. This finding needs to be contrasted with the fact that in a recent survey, corruption was considered the biggest obstacle to doing business in the region (reported in Nwanko and Richards 2001). There are obviously many things that we do not understand about the interactions between infrastructure performance and corruption. Finally, Celentani, Ganunza, and Peydros (2004) develop a model consistent with the fact that an increase in competition in international business transactions can have the perverse effect of increasing corruption. They then show how the design of international conventions influences the effectiveness of the fight against corruption.

# **The drivers of corruption in infrastructure**

Developments in the theory of incentives over the past 20–30 years have changed how we look at institutions. We can now model the nonbenevolent behavior of all agents (users, operators, and governments). We can also model the heterogeneity of governments (horizontal and vertical separation of functions and responsibilities) and users (rich versus poor). This has generated an enormous literature that cannot be reviewed here but is synthesized in Laffont and Martimort (2001).

In a nutshell, what this literature does is model the “simple” situation where an economic actor (the principal) delegates a task to one or more economic actors (the agents). The relationship is seen as a contract, and each actor has information that only they know and that they use to improve their well being. The main message is that the challenge is to determine what drives incentives to cheat. This requires ensuring that the agents are what they appear to be (in infrastructure, for example, this means checking whether the prequalification of bidders on public