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Occurrence of Deception Under the Oversight of a Regulator Having Reputation Concerns

  • Ayça Özdog̃anEmail author
Chapter
Part of the Static & Dynamic Game Theory: Foundations & Applications book series (SDGTFA)

Abstract

This paper studies deceptions conducted by agents in the presence of a regulator. The regulator is supposed to detect deviations from the “rightful” behavior through costly monitoring; thus she may not choose to be diligent in her job because of the associated costs. The goal is to understand the occurrence of deceptions when the interaction of the parties is not contractible, their behavior is not observable and the regulator has reputation concern for being perceived as diligent in a repeated incomplete-information setting. It is found that when the regulator faces a sequence of myopic agents, her payoff at any Nash equilibrium converges to the maximum payoff as the discount factor approaches to one for any prior belief on the regulator’s type. This suggests that, contrary to the well-known disappearance of reputation results in the literature, the reputation of the regulator for being diligent persists in the long-run in any equilibrium. These findings imply that socially undesirable behavior of the agents could be prevented through reputation concerns in this repeated setting.

Keywords

Regulation Reputation Repeated games Inspection games Short-lived agents 

Notes

Acknowledgements

The author gratefully acknowledges financial support from the Scientific and Technological Research Council of Turkey (TUBITAK) Project No.115K567.

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Copyright information

© Springer International Publishing Switzerland 2016

Authors and Affiliations

  1. 1.Department of EconomicsTOBB University of Economics and TechnologySög̃ütözüTurkey

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