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Optimal Audit Policy and Heterogenous Agents

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  • Marisa Ratto
  • Thibaud Verge

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Abstract

Frauds can be explained not only in terms of individual willingness to cheat, but may also be driven by opportunities to behave dishonestly. The audit policy should therefore be different for different categories of agents. This paper focuses on the optimal audit policy when there are two categories of agents and shows that the auditor adopts different policies depending on its budget. When resources are quite limited, the auditor sets identical audit probabilities for both types. On the other hand, in most of the cases, the authority should first ensure that people with lower opportunities choose not to commit an offence.

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File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp54.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 02/054.

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Length: 35 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:bri:cmpowp:02/054

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Keywords: fraud; audit; opportunities; budget allocation;

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  1. Picard, Pierre, 1994. "Auditing claims in insurance market with fraud : the credibility issue," CEPREMAP Working Papers (Couverture Orange) 9420, CEPREMAP.
  2. Graetz, Michael J & Reinganum, Jennifer F & Wilde, Louis L, 1986. "The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(1), pages 1-32, Spring.
  3. Picard, Pierre, 1996. "Auditing claims in the insurance market with fraud: The credibility issue," Journal of Public Economics, Elsevier, vol. 63(1), pages 27-56, December.
  4. Greenberg, Joseph, 1984. "Avoiding tax avoidance: A (repeated) game-theoretic approach," Journal of Economic Theory, Elsevier, vol. 32(1), pages 1-13, February.
  5. Hindriks, J., 1994. "Income Tax Compliance: The No-Commitment Game," Papers 149, Notre-Dame de la Paix, Sciences Economiques et Sociales.
  6. repec:fth:exetec:99/19 is not listed on IDEAS
  7. Cremer, H. & Marchand, M. & Pestieau, P., 1988. "Evading, Auditing And Taxing: The Equity-Compliance Tradeoff," Papers 401, Cornell - Department of Economics.
  8. Reinganum, Jennifer F & Wilde, Louis L, 1986. "Equilibrium Verification and Reporting Policies in a Model of Tax Compliance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(3), pages 739-60, October.
  9. Andreoni, J. & Erard, B. & Feinstein, J., 1996. "Tax Compliance," Working papers 9610r, Wisconsin Madison - Social Systems.
  10. Reinganum, Jennifer F. & Wilde, Louis L., 1985. "Income tax compliance in a principal-agent framework," Journal of Public Economics, Elsevier, vol. 26(1), pages 1-18, February.
  11. Scotchmer, Suzanne, 1987. "Audit Classes and Tax Enforcement Policy," American Economic Review, American Economic Association, vol. 77(2), pages 229-33, May.
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