Firms' Emissions and Self-Reporting Under Competitive Audit Mechanisms

Oestreich, Andreas Marcel

doi:10.2139/ssrn.1985757

Cited by 5 publications

(9 citation statements)

References 29 publications

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“…Others have used static models, where policy changes such as different penalty rates and tax rates, tax amnesties or changes in audit probabilities are introduced to determine the impact on compliance behavior (for surveys of tax compliance experiments see Alm and McKee (1998) and Torgler (2002)). Oestreich (2015) endogenizes output (emissions in his setup) as well as reporting, and shows theoretically that optimal output levels are non-monotonic with respect to competition in reporting. The competitive audit mechanisms he models involve either a Tullock contest or an all-pay auction rather than a rank-order tournament.…”

Section: Related Literaturementioning

confidence: 99%

Regulatory performance of audit tournaments and compliance observability

Cason

Friesen

Gangadharan

2016

European Economic Review

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This paper examines the effectiveness of traditional regulatory schemes and newly emerging social information schemes for achieving compliance. Our experiment focuses on two stochastic audit schemes for enforcing regulatory compliance. In the Random Audit mechanism firms are randomly chosen for inspection. In the Tournament Audit mechanism the probability of inspection increases with the degree of estimated underreporting. To study the effects of social information, the experiment varies the observability of identity, output, and compliance decisions. Optimal output is theoretically independent of the auditing scheme, but equilibrium reporting is higher under the Tournament mechanism than Random auditing. Experimental findings are broadly consistent with the theoretical predictions for reporting, but deviate modestly for output. In particular, we find that average output is lower and reporting is higher in the Tournament treatment compared to the Random Audit treatment. At the individual level, a majority of participants misreported in most periods. Social observability does not affect output or reporting significantly in either of the audit treatments.

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Section: Related Literaturementioning

confidence: 99%

Regulatory performance of audit tournaments and compliance observability

Cason

Friesen

Gangadharan

2016

European Economic Review

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“…Nevertheless, such increased scrutiny is likely to be welfare-enhancing. A substantial literature on regulatory and tax compliance has addressed how compliance may be improved by employing an endogenous auditing process that accounts for past behavior or contemporaneous signals (see, for example, Harrington 1988;Harford 1991;Livernois and McKenna 1999;Alm and McKee 2004;Bayer and Cowell 2009;Gilpatric et al 2011;Oestreich 2014;Cason et al 2014). For example, in an endogenous mechanism the likelihood of audit may increase if a firm has past violations or if its current reported tax liability or reported emissions are low relative to some benchmark or peer group.…”

Section: Resultsmentioning

confidence: 99%

Abatement, Care, and Compliance by Firms in Financial Distress

Evans

Gilpatric

2015

Environ Resource Econ

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We examine precautionary behavior, specifically compliance with environmental regulations, pollution abatement, and care spending, by firms facing two sources of insolvency risk. If poor profit or a liability triggers insolvency, then the firm forgoes a profitable future. The behavioral implications of this survival motive vary across firms. Firms for whom the principal insolvency risk is liability-related now choose precaution above the level chosen by the solvent firm. For firms whose primary insolvency risk is profit-related, the survival motive reinforces incentives for care below the solvent benchmark arising from the familiar judgment-proof effect. We also characterize how insolvency risks affect incentives to conceal adverse events linked to these choices, such as an accident or a regulatory violation. An understanding of these incentives is particularly important during recessionary periods when firms struggle to survive the downturn.

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“…The idea that endogenous audit rules that condition on the declarations of all firms in a market not only reduce evasion but can also create a welfare enhancing competition externality in the goods market has recently been shown by Bayer and Cowell (2009, 2016). Oestreich (2014) applies the concept of relative auditing to self‐reported emission levels and introduces what we will call a jump rule. In a similar environment, Oestreich (2017) shows that an audit rule that implements the socially optimal emission level is a relative rule.…”

Section: Related Literaturementioning

confidence: 99%

“…We look at relative rules where the detection probability for a company smoothly increases with the difference between its own and the competitor's declaration but also consider the more extreme jump rule, where the detection probability only depends on whether a firms declares more, less or the same profit as it's competitor. The former set of rules was first introduced and analyzed by Bayer and Cowell (2009, 2016), the latter by Oestreich (2014).…”

Section: Introductionmentioning

confidence: 99%

The double dividend of relative auditing—Theory and experiments on corporate tax enforcement

Bayer

2022

J Public Economic Theory

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In this paper, we present and extend previous theoretical results that show that tax authorities can at the same time reduce tax evasion and boost output with clever audit behavior. We argue that randomized controlled trials or field experiments are impractical for empirical testing in this context. Instead, we turn to laboratory experiments and test if humans follow the theoretical mechanisms underlying the theory. We find that both dividends, less evasion, and higher output, materialize in the laboratory. We show in additional experiments that the behavioral mechanism generating the higher output differs from the theoretical driver.

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Firms' Emissions and Self-Reporting Under Competitive Audit Mechanisms

Cited by 5 publications

References 29 publications

Regulatory performance of audit tournaments and compliance observability

Regulatory performance of audit tournaments and compliance observability

Abatement, Care, and Compliance by Firms in Financial Distress

The double dividend of relative auditing—Theory and experiments on corporate tax enforcement

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