The Influence of a Biased Principal's Corruptibility on Agents' Decision-making

The work considers a principal-agent relations, where the latter has to obey the terms of a policy chosen by the former. The feature here is that the principal is biased, that is, not only is the fact of obeying the terms important for the principal, but he is also interested in how these terms are fulfilled by each agent, i.e. what methods agents choose to reach the condition of fulfillment (one particular variable, the "control variable", makes the difference). So if the way an agent satisfied the requirement doesn’t meet the principal’s expectations he will not approve it. In case the principal is also corrupt, agents are able to bribe him so that he approves them no matter how the policy terms were fulfilled by them. Thus, the principal faces a trade-off since on one hand he receives a bribe and on the other he sustains losses by deviating from his initial strategy. At the same time presence of corruption questions the quality of the requirement fulfillment by the agents.