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Articles 1 - 5 of 5
Full-Text Articles in Social and Behavioral Sciences
Strategy Meets Evolution: Games Suppliers And Producers Play, Brishti Guha
Strategy Meets Evolution: Games Suppliers And Producers Play, Brishti Guha
Research Collection School Of Economics
Final goods producers, who may be intrinsically honest (a behavioral type) or opportunistic (strategic), play a repeated game of imperfect information with suppliers of an input of variable (and non-verifiable) quality. Returns to cheating are increasing in the proportion of intrinsically honest producers. If producers compete for another scarce input, adverse selection reduces this proportion enough to enforce universal honesty, whether at a high or a low quality equilibrium. This mechanism limits the proportion of behavioral types in the population of producers over a wide range of parameters: despite their inability to compete with opportunists, they are not wholly wiped …
The Auditor And The Firm: A Simple Model Of Corporate Cheating And Intermediation, Brishti Guha
The Auditor And The Firm: A Simple Model Of Corporate Cheating And Intermediation, Brishti Guha
Research Collection School Of Economics
We apply a game-theoretic model to the analysis of the recent spate of corporate scandals in which firms have cheated their investors, often with the aid of external auditors. We characterize the different types of equilibria that obtain for different parameter ranges in an auditor’s absence (the parameters we consider being early signal accuracy – a measure of transparency – and withdrawal costs – a measure of the liquidity of investments). We also analyze whether and under what conditions the presence of an informed auditor could lead to an improvement in the sense of honest behavior replacing cheating as the …
The Case Of The Errant Executive: Management, Control And Firm Size In Corporate Cheating, Brishti Guha
The Case Of The Errant Executive: Management, Control And Firm Size In Corporate Cheating, Brishti Guha
Research Collection School Of Economics
Firm insiders – a manager and a board – face moral hazard in relation to their outside shareholders in a repeated game with asymmetric information and stochastic market outcomes. The manager determines whether or not outsiders are cheated; the board, whose objectives differ from those of outside shareholders, attempts to control the manager through compensation contracts and dismissal threats Since compensation determines the manager’s incentive to cheat, firms competing for outside capital publicly announce their managerial contracts. However, secret renegotiation between firm and manager is still possible: so outsiders guard against being cheated by limiting their total stake in any …
Games Suppliers And Producers Play: Upstream And Downstream Moral Hazard With Unverifiable Input Quality, Brishti Guha
Games Suppliers And Producers Play: Upstream And Downstream Moral Hazard With Unverifiable Input Quality, Brishti Guha
Research Collection School Of Economics
We pin down the optimal relational contract between an input supplier and a final goods producer given a framework of bilateral moral hazard with variable but non-verifiable input quality. Given the inability of third parties to verify input quality, each party has an incentive to cheat the other by making a false claim about input quality. We derive the contract which (a) induces honest behavior and brings about the Pareto superior first-best outcome for the widest possible range of exogenous parameters, and (b) maximizes the Nash product of both parties’ payoffs subject to incentive compatibility. An interesting feature of the …
Honesty And Intermediation: Corporate Cheating, Auditor Involvement And The Implications For Development, Brishti Guha
Honesty And Intermediation: Corporate Cheating, Auditor Involvement And The Implications For Development, Brishti Guha
Research Collection School Of Economics
We examine self-enforcing honesty in firm-investor relations in an imperfect public information game. Minimum firm size requirements and moral hazard limit ability to raise outside capital, yielding a floor on personal wealth required to enter entrepreneurship. Credible auditing could create efficiency gains. We propose mandatory disclosure of audit fees and an interpretation of international differences in shareholding patterns. We endogenize auditor-firm collusion and extortion by auditors. We embed our game-theoretic analysis in a general equilibrium model to generate unique equilibria that trace the impact of the distribution of wealth on the existence of the market and consequences for development.