Institutions and Commercial Frauds in Water Industry: a View of the Metropolitan Region of São Paulo

Alba V. M. A. Rocha (University of São Paulo)
Reinaldo Guerreiro (University of São Paulo)

Abstract: In water industry, frauds committed by customers to access water without paying affect firm´s revenue, contribute to increase physical losses and interfere in the economic order causing harm to society. Ex post transaction costs involve inspection in loco if fraud is suspected and legal enforcement in case a fraud is confirmed. However, individuals may react differently to the costs and benefits of complying with contractual and legal standards. We analyzed the 115,695 frauds registered in management system of the concessionaire between january 2010 and june/2016 in the Metropolitan Region of São Paulo. The results indicated that the inspections did not have an important influence on frauds quantity. Beyond that, frauds were much more numerous in residential category of use in poorest areas with low level of formal education. It is concluded that typical fraudster in this category is at the border of crime. Therefore, he needs an ‘incentive’ to choose not commit fraud. In this case we propose two interrelated paths: to impose a more educational than punitive character on the inspections and to institute a type of multilateral exchange (Coase, 1960). On the other hand, in commercial category of use frauds were much more numerous in areas with high and very high socioeconomic level. This result is supported by Becker (1968; 1974), whose argument incorporates the ilegal rational behavior and brings to the scene Hirschmann´s argument (1977), that it is up to society and firms to make effective repressive political structures in adherence to civilized self-interest (Hirschmann (1977). Due to differences in governance within the firm and in legal and social environment, the validity of the results is limited to the MRSP.

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