Competition and Development: Towards an Institutional Foundation for Competition Enforcement

Abstract

We bring together three strands of contributions to the study of institutions in the development process in order to lay down the foundations for an economic approach to the formulation of competition policies and competition law. Competition policies need to be complemented by trade, industrial, and procurement policies that provide the context for the operation of any policy regime in developing countries, laying down the foundations of a competitive market economy. First, models of the political economy of development that incorporate interest groups and their influence in the political process show that when a small group of vested interests dominate economic policy there is little room for competition policy. Second, based on the decision theory and the theory of torts of Glaeser and Shleifer we define the different regimes of competition law according to the capability to avoid subversion, elicit the optimal precaution of damages, and minimize information costs. This shows that competition regimes should be graduated by the level of institutional development. Third, we characterize the level of institutional development with a composite index of governance and government capture. Bringing together these three strands of research, we stress the need that the competition policy regime should fit each institutional level of development. We thus propose a research agenda to help policy makers and advisers better ground competition regimes and laws. This type of approach of policy, paying particular attention to the institutional background, could be applied to most areas of policy and law.