Corruption, extortion, reputation and asymmetric information

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

This paper develops a simple reputational model that examines the situation of where a corrupt official attempts to extort a bribe from a firm. The game, between these two players, is repeated, giving us a two-period story. In, what I describe as the ‘pretending-to-be-heroic scenario’, the firm (a ‘soft’ firm) does not pay the bribe in the first period (as well as, not paying the bribe in the second period). If it was a one period-model this firm would pay the bribe, and, if the bribe was not paid, the official would carry out her threat. However, in the two-period model, with a pooling equilibrium, both types of firms behave like ‘hard’ firms in the first period (not paying the bribe and complaining if the threat is carried out). Since the official knows that either type of firm will complain, she does not carry out her threat. A necessary condition for this pooling equilibrium, is that, in the second period (if the official has not discovered the firm’s type) the parameters will be such, that the official will calculate that there would be an expected loss from carrying out her threat.
Original languageEnglish
Pages1-18
Number of pages18
Publication statusPublished - 2007
Event36th Australian Conference of Economists - Hobart, Hobart, Australia
Duration: 1 Sep 20071 Sep 2007

Conference

Conference36th Australian Conference of Economists
Abbreviated titleACE
CountryAustralia
CityHobart
Period1/09/071/09/07

Fingerprint

Extortion
Asymmetric information
Corruption
Bribes
Threat
Pooling equilibrium
Scenarios
Expected loss

Cite this

Campbell, N. (2007). Corruption, extortion, reputation and asymmetric information. 1-18. Paper presented at 36th Australian Conference of Economists, Hobart, Australia.
Campbell, Neil. / Corruption, extortion, reputation and asymmetric information. Paper presented at 36th Australian Conference of Economists, Hobart, Australia.18 p.
@conference{7921d690f13a47068195d5e37394a8f9,
title = "Corruption, extortion, reputation and asymmetric information",
abstract = "This paper develops a simple reputational model that examines the situation of where a corrupt official attempts to extort a bribe from a firm. The game, between these two players, is repeated, giving us a two-period story. In, what I describe as the ‘pretending-to-be-heroic scenario’, the firm (a ‘soft’ firm) does not pay the bribe in the first period (as well as, not paying the bribe in the second period). If it was a one period-model this firm would pay the bribe, and, if the bribe was not paid, the official would carry out her threat. However, in the two-period model, with a pooling equilibrium, both types of firms behave like ‘hard’ firms in the first period (not paying the bribe and complaining if the threat is carried out). Since the official knows that either type of firm will complain, she does not carry out her threat. A necessary condition for this pooling equilibrium, is that, in the second period (if the official has not discovered the firm’s type) the parameters will be such, that the official will calculate that there would be an expected loss from carrying out her threat.",
author = "Neil Campbell",
year = "2007",
language = "English",
pages = "1--18",
note = "36th Australian Conference of Economists, ACE ; Conference date: 01-09-2007 Through 01-09-2007",

}

Campbell, N 2007, 'Corruption, extortion, reputation and asymmetric information' Paper presented at 36th Australian Conference of Economists, Hobart, Australia, 1/09/07 - 1/09/07, pp. 1-18.

Corruption, extortion, reputation and asymmetric information. / Campbell, Neil.

2007. 1-18 Paper presented at 36th Australian Conference of Economists, Hobart, Australia.

Research output: Contribution to conferencePaperResearchpeer-review

TY - CONF

T1 - Corruption, extortion, reputation and asymmetric information

AU - Campbell, Neil

PY - 2007

Y1 - 2007

N2 - This paper develops a simple reputational model that examines the situation of where a corrupt official attempts to extort a bribe from a firm. The game, between these two players, is repeated, giving us a two-period story. In, what I describe as the ‘pretending-to-be-heroic scenario’, the firm (a ‘soft’ firm) does not pay the bribe in the first period (as well as, not paying the bribe in the second period). If it was a one period-model this firm would pay the bribe, and, if the bribe was not paid, the official would carry out her threat. However, in the two-period model, with a pooling equilibrium, both types of firms behave like ‘hard’ firms in the first period (not paying the bribe and complaining if the threat is carried out). Since the official knows that either type of firm will complain, she does not carry out her threat. A necessary condition for this pooling equilibrium, is that, in the second period (if the official has not discovered the firm’s type) the parameters will be such, that the official will calculate that there would be an expected loss from carrying out her threat.

AB - This paper develops a simple reputational model that examines the situation of where a corrupt official attempts to extort a bribe from a firm. The game, between these two players, is repeated, giving us a two-period story. In, what I describe as the ‘pretending-to-be-heroic scenario’, the firm (a ‘soft’ firm) does not pay the bribe in the first period (as well as, not paying the bribe in the second period). If it was a one period-model this firm would pay the bribe, and, if the bribe was not paid, the official would carry out her threat. However, in the two-period model, with a pooling equilibrium, both types of firms behave like ‘hard’ firms in the first period (not paying the bribe and complaining if the threat is carried out). Since the official knows that either type of firm will complain, she does not carry out her threat. A necessary condition for this pooling equilibrium, is that, in the second period (if the official has not discovered the firm’s type) the parameters will be such, that the official will calculate that there would be an expected loss from carrying out her threat.

M3 - Paper

SP - 1

EP - 18

ER -

Campbell N. Corruption, extortion, reputation and asymmetric information. 2007. Paper presented at 36th Australian Conference of Economists, Hobart, Australia.