Consider a citizen who owes in taxes to the government. The government, who does not know , sends a tax collector. The tax collector observes the true and then makes a report . The collector may either report truthfully or lie and report . If the tax collector lies, the taxpayer must pay a cost of and the collector must pay a cost of where: These costs represent the potential risk of lying or hiding assets. Finally, the taxpayer may pay a bribe to the collector in exchange for lying. Payouts are therefore"