Corruption and Adverse Selection

Leonidas Koutsougeras (1) , Manuel Santos (2) , Fei Xu (3)

1 University of Manchester [Manchester]
2 University of Miami School of Business
3 ECON - Département d'économie (Sciences Po)

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

Domains: Humanities and Social Sciences; Economics and Finance

Leonidas Koutsougeras, Manuel Santos, Fei Xu. Corruption and Adverse Selection. 2019. ⟨hal-03393076⟩