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.
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Bibliographic InfoPaper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2010016.
Length: 26 pages
Date of creation: Jul 2010
Date of revision: Jul 2010
Firm corruption; auditor corruption; perfect equilibrium;
Other versions of this item:
- 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.
- Dietrich, Michael & McHardy, Jolian & Sharma, Abhijit, 2010. "Firm corruption in the presence of an auditor," MPRA Paper 24784, University Library of Munich, Germany.
- 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
This paper has been announced in the following NEP Reports:
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- repec:pse:psecon:2005-25 is not listed on IDEAS
- 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.
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