Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 1007: Corruption and Adverse Selection

Leonidas Koustougeras (), Manuel Santos () and Fei Xu ()
Additional contact information
Leonidas Koustougeras: University of Manchester, School of Social Sciences
Manuel Santos: University of Miami, School of Business Administration
Fei Xu: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden

Abstract: It is well known that in the presence of asymmetric information, adverse selection has detrimental effects on possible exchanges. We go a step further, and present a game-theoretic setup in which under such adverse selection effects there are uncertain benefits for bribing unknown players’ types (e.g., individuals, committees, or companies). A policy maker may then want to design indirect anti-corruption policies based on triggering failures for bribery attempts. In our stylized framework, we get a complete unraveling of bribes. This result can be extended to more complex environments under fairly mild conditions on players’ payoff functions.

Keywords: Corruption; bribe; adverse selection

JEL-codes: D71; D80; D82; D86

Language: English

20 pages, August 30, 2022

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