Corruptible Advice

Erik Durbin and Ganesh Iyer

American Economic Journal: Microeconomics, 2009, vol. 1, issue 2, pages 220-42

Abstract: We study information transmission to a decision maker from an advisor who values a reputation for incorruptibility in the presence of a third party who offers unobservable payments/bribes. While it is common to ascribe negative effects to such bribes, we show that given reputational concerns, bribes can play a positive role by restoring truthful communication that would otherwise not occur. Thus, while bribes can influence self-interested bad advisors to lie about the unfavorable state, they can also be used to motivate good advisors who care more about the decision maker’s utility to truthfully report the favorable state. (JEL D82, D83)

Date: 2009

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