On the impact of corruption on managers’ and controllers’ behavior

¹ IRC on Smart Mobility and Logistics and Department of Mathematics, King Fahd University of Petroleum & Minerals, Dhahran, Saudi Arabia
² Department of Financial Sciences Applied College, Imam Abdulrahman Bin Faisal University, Dammam, Saudi Arabia
³ Engineering Department, Faculty of Natural and Mathematical Sciences, King’s College London, London, UK

^* Corresponding author: slimb@kfupm.edu.sa

Received: 7 July 2021
Accepted: 23 December 2021

Abstract

In this paper, we study the impact of corruption in the context of a game involving a manager and a controller. We propose a model where the controller initiates the bribe demand from the manager. We identify the structure of three potential subgame perfect Nash equilibria, and show their uniqueness. Next, we analyze the influence of the corruption parameters (bribery amount, reciprocity bonus and reputation gain) and the manager’s and the controller’s bonuses/penalties on the equilibria. Finally, we explain how the manager and the controller may increase, decrease or maintain their performance, when the bribery amount, the reciprocity bonus or the reputation gain index increase.