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Pre‐emptive Corruption, Hold‐up and Repeated Interactions
Author(s) -
Dechenaux Emmanuel,
Samuel Andrew
Publication year - 2012
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2011.00898.x
Subject(s) - language change , compliance (psychology) , welfare , set (abstract data type) , repeated game , business , microeconomics , public economics , economics , game theory , computer science , market economy , psychology , social psychology , programming language , art , literature
This paper analyses repeated interactions between a firm and an inspector who monitors regulatory compliance. The firm may offer a bribe to pre‐empt the inspection. Corruption is unfeasible in the one‐shot game because of inspector hold‐up. In an infinitely repeated game, we characterize the set of bribes that can be sustained as equilibrium paths using the trigger strategy. In this model, the most likely bribe‐givers are not the firms that benefit the most from the illegal behaviour. Furthermore, strengthening anti‐corruption policies has ambiguous welfare effects because it improves compliance only among a subset of firms, and increases monitoring effort.