Dietrich, Michael and McHardy, Jolian and Sharma, Abhijit (2010): Firm corruption in the presence of an auditor.
Download (502kB) | Preview
This 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.
|Item Type:||MPRA Paper|
|Original Title:||Firm corruption in the presence of an auditor|
|Keywords:||firm corruption, auditor corruption, perfect equilibrium|
|Subjects:||D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory
K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory
|Depositing User:||Abhijit Sharma|
|Date Deposited:||04. Sep 2010 15:05|
|Last Modified:||30. Dec 2015 21:42|
Aglietta, M. and Reberioux, A. (2005). Corporate Governance Adrift. Cheltenham: Edward Elgar Publishing Limited. Bhagwati, J. (1982). Directly unproductive profit seeking (dup) activities. Journal of Political Economy, 90, 988–1002. Carilllo, J. (2000). Graft, bribes, and the practice of corruption. Journal of Economics and Management Strategy, 9, 257–286. Coffee, J. (2005). A theory of corporate scandals: Why the usa and europe differ. Oxford Review of Economic Policy, 21, 198–211. Jensen, M. (2006). The agency costs of overvalued equity. In A. Glyn and T. Jenkinson (eds.), Capitalism Unleashed: finance, globalization and welfare, Oxford: Oxford University Press. Lambert-Mogiliansky, A. and Sonin, K. (2006). Collusive market sharing and corruption in procurement. Journal of Economics and Management Strategy, 15, 883–908. Posner, R. (2006). From the new institutional economics to organizational economics: with applications to corporate governance, government agencies, and legal institutions. Journal of Institutional Economics, 6, 1–37. Rose-Ackerman, S. (1999). Corruption and Government: causes, consequences and reform. Cambridge: Cambridge University Press. Stiglitz, J. (2003). The roaring nineties : a new history of the world’s most prosperous decade. New York: W. W. Norton & Co. Svensson, J. (2005). Eight questions about corruption. Journal of Economic Perspectives, 19, 19–42.