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Firm Corruption in the Presence of an Auditor

Author

Listed:
  • Michael Dietrich

    (Department of Economics, University of Sheffield, UK)

  • Jolian McHardy

    (Department of Economics, University of Sheffield, UK)

  • Abhijit Sharma

    (Bradford University School of Management, UK)

Abstract

We develop a game theoretic framework exploring firm corruption accounting for interactions with an auditor who provides auditing and other services. A multiplicity of equilibria can exist including stable corruption and auditor controlled corruption. Whilst fining the auditor cannot eliminate all corruption, fining the firm can, but increasing this fine can also have perverse effects. Investing in corruption detection may be effective in deterring auditor corruption but ineffective in deterring firm corruption. Ultimately, policy effectiveness is highly dependent upon several factors which may be hard to observe in practice making general rules about policy interventions to address corruption very difficult.

Suggested Citation

  • Michael Dietrich & Jolian McHardy & Abhijit Sharma, 2012. "Firm Corruption in the Presence of an Auditor," Working Paper series 20_12, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:20_12
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    firm corruption; auditor corruption; perfect equilibrium;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • 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
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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