This chapter analyses the decision of foreign investors to finance firms in developing countries that are run by unreliable managers. These may divert a fraction of the firm’s turnover without risking legal sanctions, but, in this case, they would lose their “good” reputation. The two-period model has a rational expectation equilibrium, in which the risk of theft is endogeneous. In a macroeconomic context, economy-wide corruption appears to depend on the duration of the relationship between investors and managers.
BESANCENOT, D. et VRANCEANU, R. (2001). Endogeneous Corruption Risk and FDI in the Developing Countries. Dans: International Public Policy and Regionalism at the Turn of the Century. 1st ed. Pergamon, pp. 395-412.