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Working Papers (1998), ESSEC Business School

A Model of Manager Corruption in Developing Countries with Macroeconomic Implications

BESANCENOT D., VRANCEANU Radu

The possibility of facing corrupt managers is an important factor explaining foreigners' hesitations about investing in developing countries. This paper aims at investigating how reputation concerns influence managers' behavior and country-specific attractiveness. The first part of the text analyzes the optimal decision rule of a manager who is able to transfer in his own hands a fraction of the firm's income. The macroeconomic implications of this simple model are investigated in the second part of the paper, where analysis is cast in an overlapping generation framework. Economy-wide corruption, development prospects and global profitability appear to depend on the duration of the relationship between investors and managers.

BESANCENOT, D. and VRANCEANU, R. (1998). A Model of Manager Corruption in Developing Countries with Macroeconomic Implications. ESSEC Business School.