MECHANISM AND IMPACTS OF EMBEZZLEMENT IN A DUOPOLISTIC MARKET

We consider the case in which a corruptible manager contemplates to embezzle his/her firm's revenues by overstating the production costs in a duopolistic market. In order to embezzle more, the manager chooses to increase the firm's output. This partially corrects the market failures associated with the oligopoly distortion. Nevertheless, pervasive and large-scale embezzlement is detrimental and should be addressed, although moderate embezzlement might be socially good. We also consider how the length of tenure affects the manager's behaviours: extending the tenure cannot eradicate embezzlement, and an insufficient rise of the reward rate may only defer embezzlement.