“Leakage” in International Regulatory Regimes: Did the OECD Anti-bribery Convention Increase Bribery?

When do well-intended regulatory regimes have unintended consequences? We examine one obstacle to successful regulation, “regulatory leakage,” in the context of the OECD Anti-Bribery Convention (ABC). Leakage occurs when regulated behavior decreases for actors under a regime’s jurisdiction, but increases among those outside of it. We analyze a formal model that demonstrates how the ABC may simultaneously reduce bribery among firms from member countries, while increasing bribery by firms from non-ABC member countries. We also show how the ABC may lead firms from ABC member countries to shift to bribery through intermediaries. New empirical evidence of MNC activity in Vietnam shows evidence of both regulatory leakage and bribery through intermediaries.