The first chapter of the thesis applies game theory in order to examine the question of
income redistribution from a fresh angle. In particular, it considers a mechanism of
patron-client relationships which enables a society's rich class to limit the extent of
redistributive taxation. In effect, the aim of patronage is to "buy" the votes of some poor
citizens and lower the demand for redistribution. Income tax rates are further shown to
depend negatively on government corruption in the form of fund capture, provided that a
democratic regime is in place and the government cares about reelection. This link is
tested empirically using cross country data and the evidence is consistent with the
predictions of the model.The second and third chapters shift the focus of attention towards the process of decision
making in games and the role of emotions in this process. Corruption, which is taken as
exogenous in the first chapter, is now considered in detail as the outcome of a
cooperation game between two players, with a third player (or "third party") having a
stake in the outcome of the game but no opportunity to take any direct action. This
situation is analysed using psychological game theory. Players' utility functions are
extended to include beliefs and the emotions that these generate. In the theoretical model
of the second chapter the emotion of interest is guilt and this is conditioned on the
perceived beliefs of the third party. The two players are then less likely to collude if they
believe that the third party expects a favourable outcome for herself. The model solves
for the conditions under which collusion emerges in equilibrium. The main assumption of
the model (i.e. the role of beliefs in decision making) as well as some of its predictions
are then tested using an economic experiment in the third and final chapter of the thesis.
The experimental findings strongly support the impact of beliefs on the incidence of
collusion: Perceived expectations of the third party about the outcome of the game appear
to be the most significant factor that determines the outcome itself. There seems to be a
mechanism of self-fulfilling expectations which can be applicable to a number of
economic situations, including corruption in public administration
