challenge in many countries. Utility managers or their staff may restrict delivery to extort customers or offer illegal connections in return for payments. The consequence is poorer performance of the industries, often facilitated through corruption in monitoring mechanisms. This form of corruption, between service-providers and end-users, is reported in several surveys. Fairly reliable data have been generated, and the phenomenon has become more accessible for research (Clarke and Xu, 2004).

_Grand corruption_ , which involves higher decision-levels in a country, is conceptually quite different from petty corruption. It includes cases when politicians or high-ranking civil servants manipulate a country’s management or regulation of infrastructure industries to gain exclusive benefits (see Box 1 for examples). It can be a ‘purely’ public sector phenomenon or involve both public and private agents. In the first case, state-owned public service providers serve as tools for politicians, who benefit in the form of personal revenues, bolstered positions, or party contributions. In the case of public-private interactions, private sector actors use bribes to influence the form of the market or contractual terms at the cost of consumer welfare. Sometimes these phenomena are described as _crony capitalism_ , in which political networks dominate important private assets, or _state capture_ , in which private firms are able to influence public power to their own benefit.<sup>4</sup> These categories are simplifications. Various forms of corruption will often be interlinked, or made possible, through other forms of crime. The dividing line between petty and grand corruption can become blurred, for instance if utility management abuse their status as principals within the institution of the utility to overlook petty corruption in return for payments from staff.

With that caveat, grand corruption as opposed to petty corruption, frequently involves changing rather than breaking rules and institutional structures. For example, petty corruption may involve theft of electricity with the collusion of utility staff. Grand corruption may involve altering bid rules to ensure that a particular firm is selected.<sup>5</sup> Of course, both cases may involve breaking laws, but grand corruption may be more difficult to delineate because officials act within their authority when altering institutional structures or outcomes.

For a conceptual explanation of the difference, consider the principal-agent framework versus political agency: Petty corruption refers to officials (agents) who profit personally from making choices that deviate from the goals of the institution that they represent. Such corruption is possible because the managers of the institution (principals) have insufficient capacity or incentive to monitor decisions made in the institution that they administer.<sup>6</sup> With grand corruption it is the "managers” (politicians) who deviate from the goal of the country and a welfare-enhancing track, while the electorate are the “principals” who have insufficient information about their politicians and the choices they make. A main contrast between petty and grand corruption thus relates to the monitoring mechanisms, which can be far better organized when petty corruption is the problem. With grand corruption, elected politicians are often directly or indirectly controlling supposed monitoring mechanisms, including the media as well as the judicial system.

> 4 The state capture terms was introduced by Hellman et al. (2003). Michael Johnston (2005) is more precise about political corruption, when suggesting a distinction between what he calls “power chasing wealth” and “wealth chasing power”.  See Rose-Ackerman (2007) for a discussion.

> 5 When it comes to corruption in general, it is important to distinguish between legal forms of influence, such as lobby-groups, and illegal corruption, because it can be shown that these are characteristically different mechanisms with different consequences (Harstad and Svensson, 2008).

> 6 Accordingly, the principal-agent framework is much applied to understand corruption; see for instance Mishra (2006), Acemoglu and Verdier (2000), Olsen and Torsvik (1998) and Laffont and Martimort (1997). This literature separates importantly between benevolent and non-benevolent principals (Aidt, 2003). In political economy models, the politicians are often thought of as agents while the voters are the principals, and this too is a useful approach (see Besley (2006), for instance).

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