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Turning Bribes into Lemons: an optimal mechanism

Author

Listed:
  • Christopher Stapenhurst

    (Brandenburg University of Technology)

  • Andrew Clausen

    (School of Economics, University of Edinburgh)

Abstract

Corruption requires a coalition to form and reach an agreement. Is there a cheap way to stop any agreement from being reached? We find an optimal mechanism that resembles Poker. The players' hands are synthetic asymmetric information, and they create a lemons problem in the market for bribes. Our Poker mechanism is robust: it thwarts bribes regardless of the negotiation procedure, including alternating offers bargaining, Dutch auctions and arbitration. In compliance settings, there is a trade-off between rewarding the agent for honesty and punishing him for non-compliance. This trade-off is resolved by rigging the Poker hand distribution against the agent and in favour of the monitor. Finally, the cost of deterring bribes is inversely proportional to the number of monitors.

Suggested Citation

  • Christopher Stapenhurst & Andrew Clausen, 2026. "Turning Bribes into Lemons: an optimal mechanism," Edinburgh School of Economics Discussion Paper Series 326, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:esedps:326
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    Keywords

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    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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