Turning Bribes into Lemons: an optimal mechanism

Christopher Stapenhurst and Andrew Clausen

No 326, Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: Corruption requires a coalition to form and reach an agreement. Is there a cheap way to stop any agreement from being reached? We find an optimal mechanism that resembles Poker. The players' hands are synthetic asymmetric information, and they create a lemons problem in the market for bribes. Our Poker mechanism is robust: it thwarts bribes regardless of the negotiation procedure, including alternating offers bargaining, Dutch auctions and arbitration. In compliance settings, there is a trade-off between rewarding the agent for honesty and punishing him for non-compliance. This trade-off is resolved by rigging the Poker hand distribution against the agent and in favour of the monitor. Finally, the cost of deterring bribes is inversely proportional to the number of monitors.

Keywords: Corruption; adverse selection; screening; mechanism design; information design. (search for similar items in EconPapers)
JEL-codes: D73 D82 D86 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2026-01
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