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091007_Transparency_Theory

091007_Transparency_Theory - TRANSPARENCY AND PERFORMANCE...

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TRANSPARENCY AND PERFORMANCE IN GOVERNMENT Jerry Brito * & Drew Perraut ** I NTRODUCTION Transparency has of late been an increasingly popular topic of discussion in domestic and international policy circles. Often, it is prescribed as a remedy for an immediate crisis. For example, the Sarbanes-Oxley Act of 2002 was passed in response to the Enron and WorldCom accounting scandals. 1 Reacting to the Jack Abramoff lobbying scandal, the 109th Congress made the adoption of new ethics rules one of its first orders of business. 2 However, this reactionary approach focuses on rooting out corruption—often after it has already been discovered—and often ignores the other salutary effects of transparency. The legal literature on transparency is generally divided into two categories: the study of transparency as a solution to political corruption and scholarship looking at transparency in the context of corporate disclosure requirements. The former is concerned with preventing government malfeasance that can lead to serious societal problems, especially in the developing world. The latter focuses on the disclosure of corporate performance to fully inform markets. However, these two insights on transparency never meet. In this article, we hope to show that just as mandatory transparency can improve corporate * Senior Research Fellow, Mercatus Center at George Mason University. J.D., George Mason University School of Law, 2005; B.A., Political Science, Florida International University, 1999. The authors would like to thank Gabriel Okolski and Michael Stork for their research assistance, Jerry Ellig and Richard Williams for helpful comments on drafts, and Maurice McTigue for developing many of the concepts discussed here . ** MSc., Political Theory, London School of Economics and Political Science, 2007; B.A., Philosophy, Politics, and Economics, Pomona College, 2006. 1 Kathleen F. Brickey, From Enron to Worldcom and Beyond: Life and Crime After Sarbanes-Oxley , 81 W ASH . U. L.R. 357, 357-360 (2003). 2 Brian Griffith, Lobbying Reform: House-Cleaning or Window Dressing? , 75 U. C IN . L. R EV . 863, 863-865 (2007).
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2 Brito & Perraut [17-Feb-10 performance, it may help improve government performance as well. As Nobel Laureate Joseph Stiglitz has shown, transparency is a tool to address the principal-agent problem caused by information asymmetries. 3 Markets work most efficiently when all parties have good information about what they are buying and selling, which allows everyone to accurately determine how much they value the trade. Because each party values what she gets more than what she gives up, value is created for both (an efficient market). But this is not always the case; sometimes one party to a trade knows much more than the other, which can disrupt this mutually beneficial exchange. Auto mechanics have long suffered as the butt of innumerable jokes because they know exactly what is wrong with their customers’ cars —and they know that their customers do not know.
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  • Fall '08
  • staff
  • RNA, Political corruption, Brito, Perraut

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