Avoiding non-optimal management decisions by applying a three-person inspection game
An inspection game models a conflict situation between an inspector and an inspectee. The mathematical analysis aims to generate optimal behavior of the inspectee under the assumption that an undesirable action of the inspectee could otherwise be carried out strategically. In this paper the controller’s (inspector’s) particular job is to audit a manager’s (inspectee’s) decision and to submit a report to the company’s top managers for examination. Thus, a conflict as regards the choice of behavioral actions of the manager, the controller and the top management impends. Based on Fandel and Trockel (2011a) this modified inspection game is discussed here for the first time as a three-person game in the context of a manager’s faulty decision that will unnecessarily add to the company’s costs and that the top management understandably wishes to minimize. We will first examine the conditions under which a Nash equilibrium occurs in this three-person game in which poor management, poor monitoring and poor revision coincide. We will then examine the effects that the penalties and bonuses exert on the Nash equilibrium solution. We will find that penalties and bonuses can neutralize each other in their effects on the improved decision making by the manager and the controller.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Avenhaus, Rudolf & Canty, Morton John, 2005. "Playing for time: A sequential inspection game," European Journal of Operational Research, Elsevier, vol. 167(2), pages 475-492, December.
- Luciano Andreozzi, 2008. "Inspection games with long-run inspectors," Department of Economics Working Papers 0821, Department of Economics, University of Trento, Italia.
- Luciano Andreozzi, 2004. "Rewarding Policemen Increases Crime. Another Surprising Result from the Inspection Game," Public Choice, Springer, vol. 121(1), pages 69-82, October.
- Quintas, L G, 1989.
"A Note on Polymatrix Games,"
International Journal of Game Theory,
Springer, vol. 18(3), pages 261-72.
- Hohzaki, Ryusuke, 2007. "An inspection game with multiple inspectees," European Journal of Operational Research, Elsevier, vol. 178(3), pages 894-906, May.
- Yasuhiro Ohta, 2008. "On the Conditions under which Audit Risk Increases with Information," European Accounting Review, Taylor & Francis Journals, vol. 17(3), pages 559-585.
- Hohzaki, Ryusuke & Maehara, Hiroki, 2010. "A single-shot game of multi-period inspection," European Journal of Operational Research, Elsevier, vol. 207(3), pages 1410-1418, December.
- Deutsch, Yael & Golany, Boaz & Rothblum, Uriel G., 2011. "Determining all Nash equilibria in a (bi-linear) inspection game," European Journal of Operational Research, Elsevier, vol. 215(2), pages 422-430, December.
- Avenhaus, Rudolf & Canty, Morton & Marc Kilgour, D. & von Stengel, Bernhard & Zamir, Shmuel, 1996. "Inspection games in arms control," European Journal of Operational Research, Elsevier, vol. 90(3), pages 383-394, May.
- Fandel, Günter & Trockel, Jan, 2011. "Optimal lot sizing in a non-cooperative material manager-controller game," International Journal of Production Economics, Elsevier, vol. 133(1), pages 256-261, September.
- R Hohzaki & R Masuda, 2012. "A smuggling game with asymmetrical information of players," Journal of the Operational Research Society, Palgrave Macmillan, vol. 63(10), pages 1434-1446, October.
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:226:y:2013:i:1:p:85-93. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
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.