How can corruption affect corporate behaviour? : a two-stage game theory model approach

2020

This paper rationalizes the behaviour of decision makers within several countries where

such behaviour is mainly non-existent or illegal. In particular, we study the Telecom

Corruption Scandal in 2012 and build a two-stage game theory model specifically to that

event in order to justify the decisions made by the agents involved. The first model examines

the behaviour of a single decision maker engaging in corrupt activities. We study the optimal

bribery amount the decision maker are willing to pay and found that for such optimal level

there exists no equilibrium where a moral type finds it attractive to invoke corrupt behaviour.

Next, we extend our model in which we include a second firm and study the impact of such

inclusion. We found that the involvement of a second firm serves as a risk sharer and hence,

under some certain assumptions we found that there exists a unique equilibrium in which

both enterprises finds it optimal to bribe and engage in corrupt activities. Such equilibria

might only exist between companies from countries with similar Corruption Perception

Index (CPI), as when the scores deviate significantly from each other either in nature or

through dynamic changes, we might instead arrive at corner solutions. We found the derived

models applicable to the Telecom Scandal, but further rigorous analysis and discussions can

be made to improve the model. Additionally, we describe factors that the model cannot

explain which may influence the outcomes. In total, we provide evidence for the existence

of corporate behaviour that are not fully in-line with classic economic models, and we

rationalize such behaviour by defining and including new decision variables we find crucial

to clarify such phenomenon.

Keywords - Telecom Scandal, Corruption, Game Theory, Corruption Perception Index,

Optimal Bribe Amounts