Abstract
In this paper, we study the impact of corruption in the context of a game involving a manager and a controller. We propose a model where the controller initiates the bribe demand from the manager. We identify the structure of three potential subgame perfect Nash equilibria, and show their uniqueness. Next, we analyze the influence of the corruption parameters (bribery amount, reciprocity bonus and reputation gain) and the manager’s and the controller’s bonuses/penalties on the equilibria. Finally, we explain how the manager and the controller may increase, decrease or maintain their performance, when the bribery amount, the reciprocity bonus or the reputation gain index increase.
Highlights
Corruption and bribery are among the largest impediments to economic and social development [22]
We show that, under a set of motivated assumptions, the Nash equilibria are of two different types
We show that the proposed game has three extreme sequential Nash equilibria
Summary
Corruption and bribery are among the largest impediments to economic and social development [22]. Dechenaux and Samuel [7] analyze a repeated game where the inspector monitors regulatory compliance of a firm that may offer a bribe to prevent inspection They consider that corruption is unfeasible in the one-shot game because of the inspector’s hold-up, but becomes feasible in an infinitely repeated game. They characterize the set of bribes that can be sustained as equilibrium paths using a trigger strategy Their results show that strengthening anti-corruption policies improves compliance only among a subset of firms, despite any increased monitoring effort. In line with the aforementioned research, our paper studies game agents’ behavior in the context of bribery It considers a particular two-player game, where a controller inspects the manager of a company and prepares a report that she submits to the board of directors.
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