The Good, the Bad, and the Regulator: An Experimental Test of Two Conditional Audit Schemes
AbstractConditional audit rules are designed to achieve regulatory compliance with fewer inspections than required by random auditing. A regulator places individuals into audit pools that differ in probability of audit or severity of fine and specifies transition rules between pools. Future pool assignment is conditional on current audit results. We conduct an experiment to compare two specific schemes--Harrington's Past-Compliance Targeting and Friesen's Optimal Targeting--against random auditing. We find a production possibility frontier between compliance and minimizing inspections. Optimal targeting generates the lowest inspection rates as predicted, but random auditing the highest compliance. Past-compliance targeting is intermediate. (JEL C91, H26, K42, L51) Copyright 2004, Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 42 (2004)
Issue (Month): 1 (January)
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Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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- Lana Friesen, 2012.
"Certainty of Punishment versus Severity of Punishment: An Experimental Investigation,"
Southern Economic Journal,
Southern Economic Association, vol. 79(2), pages 399-421, October.
- Lana Friesen, 2009. "Certainty of Punishment versus Severity of Punishment- An Experimental Investigation," Discussion Papers Series 400, School of Economics, University of Queensland, Australia.
- Timothy N. Cason & Lata Gangadharan, 2006.
"An Experimental Study of Compliance and Leverage in Auditing and Regulatory Enforcement,"
Western Economic Association International, vol. 44(2), pages 352-366, April.
- Timothy N. Cason & Lata Gangadharan, 2004. "An Experimental Study of Compliance and Leverage in Auditing and Regulatory Enforcement," Department of Economics - Working Papers Series 918, The University of Melbourne.
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