Firm corruption in the presence of an auditor
AbstractThis paper develops a framework to explore firm corruption taking account of interaction with an auditor. The basic idea is that an auditor can provide auditing and other (consultancy) services. The extent of the other services depends on firm profitability. Hence auditor profitability can increase with firm corruption that may provide an incentive to collude in corrupt practices. This basic idea is developed using a game theoretic framework. It is shown that a multiplicity of equilibria exist from stable corruption, through auditor controlled corruption, via multiple equilibria to honesty on behalf of both actors. Following the development of the model various policy options are highlighted that show the difficulty of completely removing corrupt practices.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 24784.
Date of creation: Sep 2010
Date of revision:
firm corruption; auditor corruption; perfect equilibrium;
Other versions of this item:
- Michael Dietrich & Jolian McHardy & Abhijit Sharma, 2010. "Firm corruption in the presence of an auditor," Working Papers 2010016, The University of Sheffield, Department of Economics, revised Jul 2010.
- Michael Dietrich & Jolian McHardy & Abhijit Sharma, 2012. "Firm Corruption in the Presence of an Auditor," Working Paper Series 20_12, The Rimini Centre for Economic Analysis.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-11 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ariane Lambert-Mogiliansky & Konstantin Sonin, 2005.
"Collusive market-sharing and corruption in procurement,"
PSE Working Papers
- Ariane Lambert-Mogiliansky & Konstantin Sonin, 2006. "Collusive Market Sharing and Corruption in Procurement," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 883-908, December.
- Marco Pagano & Giovanni Immordino, 2007.
"Optimal Regulation of Auditing,"
CESifo Economic Studies,
CESifo, vol. 53(3), pages 363-388, September.
- Marco Pagano & Giovanni Immordino, 2007. "Optimal Regulation of Auditing," CESifo Working Paper Series 1980, CESifo Group Munich.
- Giovanni Immordino & Marco Pagano, 2005. "Optimal Regulation of Auditing," CSEF Working Papers 133, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 May 2007.
- Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
- Samuel, Andrew, 2009. "Preemptive collusion among corruptible law enforcers," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 441-450, August.
- John C. Coffee, 2005. "A Theory of Corporate Scandals: Why the USA and Europe Differ," Oxford Review of Economic Policy, Oxford University Press, vol. 21(2), pages 198-211, Summer.
- Juan D. Carrillo, 2000. "Graft, Bribes, and the Practice of Corruption," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 257-286, 06.
- Lessmann, Christian & Markwardt, Gunther, 2008.
"One size fits all? Decentralization, corruption, and the monitoring of bureaucrats,"
Dresden Discussion Paper Series in Economics
14/08, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
- Lessmann, Christian & Markwardt, Gunther, 2010. "One Size Fits All? Decentralization, Corruption, and the Monitoring of Bureaucrats," World Development, Elsevier, vol. 38(4), pages 631-646, April.
- Christian Lessmann & Gunther Markwardt, 2009. "One Size Fits All? Decentralization, Corruption, and the Monitoring of Bureaucrats," CESifo Working Paper Series 2662, CESifo Group Munich.
- repec:pse:psecon:2005-25 is not listed on IDEAS
- Mishra, Ajit, 2006. "Persistence of corruption: some theoretical perspectives," World Development, Elsevier, vol. 34(2), pages 349-358, February.
- Laffont, Jean-Jacques & N'Guessan, Tchetche, 1999. "Competition and corruption in an agency relationship," Journal of Development Economics, Elsevier, vol. 60(2), pages 271-295, December.
- Juan D. Carrillo, 2000. "Graft, Bribes, and the Practice of Corruption," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(2), pages 257-288, 06.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.