Strategic analysis of influence peddling

Abstract

This paper analyzes "influence peddling" in a model that portrays interactions involving human capital transfer and collusion-building, in which each government official regulates multiple firms simultaneously. We show that there exists a collusion maximizing equilibrium between a sequence of "qualified" regulators and a firm such that the qualified bureaucrat manipulates regulation rates for two firms by regulating the colluding firm leniently for the maximized sum of their payoffs, but regulating the non-colluding firm stringently for the signaling in order to "compensate" for the lenient regulatory stance taken toward the colluding firm.