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Correlated Payoffs in the Inspection Game: Some Theory and an Application to Corruption

Tim Friehe
Public Choice
Vol. 137, No. 1/2 (Oct., 2008), pp. 127-143
Published by: Springer
Stable URL: http://www.jstor.org/stable/40270855
Page Count: 17
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Correlated Payoffs in the Inspection Game: Some Theory and an Application to Corruption
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Abstract

The inspection game as formulated by Tsebelis (Am. Polit. Sci. Rev. 83: 77–91, 1989) has the counterintuitive implication that crime is unaffected by the magnitude of the penalty. This paper demonstrates that to attain this outcome, it is necessary to assume independence of enforcer and offender payoffs. Given correlated payoffs, the comparative statics of the equilibrium yield an inverse relationship between crime and the severity of the sanction. In an application, we enrich the framework of Tsebelis by adding corruption stages and show that this can imply such a correlation of payoffs. Another interesting finding is that harsher anticorruption measures can increase crime incentives.

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