Corruption Suppression Models: the Role of Inspectors’ Moral Level

Controllers and auditors often encounter corruption in organizations, which involves mutually profitable collusion between the audited agent and the auditing inspector. Due to such corrupt collusion, the audited agents avoid the required inspection of their behavior. To enforce the desired behavior of agents and prevent corruption, a hierarchical inspection structure is organized. In the proposed model we apply the game-theoretical approach to examine the optimal organization of hierarchical structures that enforce honest behavior of both the audited agents and the auditors. Inspections are carried out by honest inspectors, who always perform honest audits, and by so-called rational inspectors, who take bribes when they find it advantageous. The inspection superintendent has information on the proportion of honest inspectors at each level of audit and uses this information to reduce the cost of enforcing honest behavior.