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Supervisory information and loss aversion

Author

Listed:
  • Shin, Dongsoo
  • Yun, Sungho

Abstract

This study examines the optimality of allowing corrupt interactions (bribery, framing and extortion) between the supervisor and the agent when the agent is loss averse. We show that although inducing bribery leads to effective usage of the supervisory information, preventing all corrupt interactions between the supervisor and the agent by disregarding some of supervisory information can be optimal.

Suggested Citation

  • Shin, Dongsoo & Yun, Sungho, 2021. "Supervisory information and loss aversion," Economics Letters, Elsevier, vol. 204(C).
    • Handle: RePEc:eee:ecolet:v:204:y:2021:i:c:s0165176521001853
    DOI: 10.1016/j.econlet.2021.109908
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    References listed on IDEAS

    as
    1. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    2. Yun Sungho, 2012. "Costs of Engaging in Corruption: Equilibrium with Extortion and Framing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-32, December.
    3. Botond Koszegi & Matthew Rabin, 2007. "Reference-Dependent Risk Attitudes," American Economic Review, American Economic Association, vol. 97(4), pages 1047-1073, September.
    4. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2010. "Bribery versus extortion: allowing the lesser of two evils," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 179-198, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Corruption; Supervisory information; Loss aversion;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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