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Optimal Audit Policy and Heterogenous Agents

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  • Marisa Ratto

    (CMPO - University of Bristol)

  • Thibaud Vergé

    (University of Southampton)

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://128.118.178.162/eps/pe/papers/0301/0301001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Public Economics with number 0301001.

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Length: 35 pages
Date of creation: 22 Jan 2003
Date of revision:
Handle: RePEc:wpa:wuwppe:0301001

Note: Type of Document - PDF; prepared on PC-ScientificWord; pages: 35 ; figures: included/
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Web page: http://128.118.178.162

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Keywords: Fraud; audit; opportunities; budget allocation.;

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  1. 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.
  2. Cremer, H. & Marchand, M. & Pestieau, P., 1988. "Evading, Auditing And Taxing: The Equity-Compliance Tradeoff," Papers 401, Cornell - Department of Economics.
  3. Scotchmer, Suzanne, 1987. "Audit Classes and Tax Enforcement Policy," American Economic Review, American Economic Association, vol. 77(2), pages 229-33, May.
  4. 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.
  5. Hindriks, J., 1994. "Income Tax Compliance: The No-Commitment Game," Papers 149, Notre-Dame de la Paix, Sciences Economiques et Sociales.
  6. Greenberg, Joseph, 1984. "Avoiding tax avoidance: A (repeated) game-theoretic approach," Journal of Economic Theory, Elsevier, vol. 32(1), pages 1-13, February.
  7. 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.
  8. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
  9. repec:fth:exetec:99/19 is not listed on IDEAS
  10. 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.
  11. Picard, Pierre, 1994. "Auditing claims in insurance market with fraud : the credibility issue," CEPREMAP Working Papers (Couverture Orange) 9420, CEPREMAP.
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