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Divide and Conquer: A Fresh Look at Media Capture

In this paper, we present a general model of media capture where a government attempts to buy-out media firms in order to engage in corruption with relative immunity. In particular, we relax the assumption made by Besley and Prat (2005) that each firm would individually be able to completely expose the government if it were left unpurchased. On the contrary we assume that any given firm’s ability to substantiate its allegations would depend at least partly on how many other firms were also taking such a stand. Hence if more firms were to raise allegations, it would tend to enhance their credibility and thus contribute positively to a firm’s payoff (the “credibility” effect). However, on the flip side, if the allegations were indeed substantiated, then the gain from the scandal would be shared among a larger group of firms, tending to reduce this payoff (the “share” effect). Accordingly, we identify two cases. In the first case, the credibility effect dominates the share effect such that the expected payoff to any firm increases as more firms raise corruption allegations. In the second case, the opposite is true. We analyse the pattern of media capture and incentive for corruption under both the cases. For the first case, we get some new and interesting insights. Firstly, even when corruption would involve purchase of all firms, the government could reduces bribes paid by employing the “divide and conquer” strategy so that the highest bribe would be paid to only one firm and the rest would get successively lower bribes. Further, it may not always be optimal to buy all firms. There could be conditions under which corruption could be supported most profitably by buying only a subset of firms. Both these findings tend to undermine the deterrent effect of having multiple firms within the media. For the second case, our results tend to corroborate Besley and Prat (2005) in a more general setting. We also present a numerical example which suggests that under the first case, an increase in the number of firms in the media might even land up contributing to corruption rather than enhancing deterrence.

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Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2007_08.

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Length: 44 pages
Date of creation: 18 Oct 2007
Handle: RePEc:dkn:econwp:eco_2007_08
Note: Dr. Samarth Vaidya is the corresponding author for this paper.
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