IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Cost Padding, Auditing and Collusion

Listed author(s):
  • Jean-Jacques Laffont
  • Jean Tirole

This paper first studies how cost padding, auditing and collusion with auditors affect the power of incentive schemes in procurement and regulation. Unaudited cost padding requires fixed price contracts. Incentive schemes are more powerful under imperfect auditing than under perfect auditing and less powerful than under no auditing. The effect of collusion in auditing on the optimal power of incentive schemes is ambiguous; high-powered schemes reduce the incentive for cost padding and thus are less affected by collusion; however, they also yield higher rents and therefore make firms more willing to prevent release of evidence of cost padding. Monitoring of effort, the second topic of this paper, is a substitute for the use of low-powered incentive schemes to extract the informational rents. It thus enables the regulator to afford more powerful incentive schemes. Collusion in auditing unambiguously lowers the power of incentive schemes.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Article provided by GENES in its journal Annals Of Economics and Statistics.

Volume (Year): (1992)
Issue (Month): 25-26 ()
Pages: 205-226

in new window

Handle: RePEc:adr:anecst:y:1992:i:25-26:p:205-226
Contact details of provider: Postal:
3, avenue Pierre Larousse, 92245 Malakoff Cedex

Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:adr:anecst:y:1992:i:25-26:p:205-226. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laurent Linnemer)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.