IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v76y2021ics0167718721000126.html
   My bibliography  Save this article

Who commits fraud? evidence from korean gas stations

Author

Listed:
  • Ahlin, Christian
  • Kim, In Kyung
  • Kim, Kyoo il

Abstract

In this article, we study under what circumstances a gas station is more likely to commit fuel fraud. Using a new and hitherto unexploited list of fuel fraud detections, we find evidence that stations under less favorable economic conditions – higher operating costs and possibly more competitors – engage in fraudulent activity more often. Chain-affiliated stations commit fraud less often, suggesting an effectiveness in harnessing reputational incentives. Also, fuel fraud tends to cluster among nearby stations, consistent with propagation of illicit activity from one station to others nearby. As for pricing behavior, in general gas stations appear to keep price constant and take higher price-cost margins when selling adulterated fuel, suggesting that consumers are harmed by this kind of fraud.

Suggested Citation

  • Ahlin, Christian & Kim, In Kyung & Kim, Kyoo il, 2021. "Who commits fraud? evidence from korean gas stations," International Journal of Industrial Organization, Elsevier, vol. 76(C).
  • Handle: RePEc:eee:indorg:v:76:y:2021:i:c:s0167718721000126
    DOI: 10.1016/j.ijindorg.2021.102719
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718721000126
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ijindorg.2021.102719?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Edward L. Glaeser & Bruce Sacerdote & José A. Scheinkman, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 507-548.
    2. Dan Amiram & Zahn Bozanic & James D. Cox & Quentin Dupont & Jonathan M. Karpoff & Richard Sloan, 2018. "Financial reporting fraud and other forms of misconduct: a multidisciplinary review of the literature," Review of Accounting Studies, Springer, vol. 23(2), pages 732-783, June.
    3. Burns, Natasha & Kedia, Simi, 2006. "The impact of performance-based compensation on misreporting," Journal of Financial Economics, Elsevier, vol. 79(1), pages 35-67, January.
    4. Shane A. Johnson & Harley E. Ryan & Yisong S. Tian, 2009. "Managerial Incentives and Corporate Fraud: The Sources of Incentives Matter," Review of Finance, European Finance Association, vol. 13(1), pages 115-145.
    5. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    6. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
    7. Loukas Balafoutas & Adrian Beck & Rudolf Kerschbamer & Matthias Sutter, 2013. "What Drives Taxi Drivers? A Field Experiment on Fraud in a Market for Credence Goods," Review of Economic Studies, Oxford University Press, vol. 80(3), pages 876-891.
    8. Ginger Zhe Jin & Phillip Leslie, 2009. "Reputational Incentives for Restaurant Hygiene," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 237-267, February.
    9. Victor Manuel Bennett & Lamar Pierce & Jason A. Snyder & Michael W. Toffel, 2013. "Customer-Driven Misconduct: How Competition Corrupts Business Practices," Management Science, INFORMS, vol. 59(8), pages 1725-1742, August.
    10. Andrei Shleifer, 2004. "Does Competition Destroy Ethical Behavior?," American Economic Review, American Economic Association, vol. 94(2), pages 414-418, May.
    11. Alexander Rasch & Christian Waibel, 2018. "What Drives Fraud in a Credence Goods Market? – Evidence from a Field Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 80(3), pages 605-624, June.
    12. Jean Tirole, 1996. "A Theory of Collective Reputations (with applications to the persistence of corruption and to firm quality)," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 1-22.
    13. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
    14. Jonathan Zinman & Eric Zitzewitz, 2016. "Wintertime for Deceptive Advertising?," American Economic Journal: Applied Economics, American Economic Association, vol. 8(1), pages 177-192, January.
    15. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    16. Yuk-fai Fong, 2005. "When Do Experts Cheat and Whom Do They Target?," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 113-130, Spring.
    17. Mimra, Wanda & Rasch, Alexander & Waibel, Christian, 2016. "Price competition and reputation in credence goods markets: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 100(C), pages 337-352.
    18. Karpoff, Jonathan M & Lott, John R, Jr, 1993. "The Reputational Penalty Firms Bear from Committing Criminal Fraud," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 757-802, October.
    19. Fong, Yuk-fai & Liu, Ting & Wright, Donald J., 2014. "On the role of verifiability and commitment in credence goods markets," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 118-129.
    20. Asher Wolinsky, 1993. "Competition in a Market for Informed Experts' Services," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
    21. Lint Barrage & Eric Chyn & Justine Hastings, 2020. "Advertising and Environmental Stewardship: Evidence from the BP Oil Spill," American Economic Journal: Economic Policy, American Economic Association, vol. 12(1), pages 33-61, February.
    22. Tracy Yue Wang & Andrew Winton & Xiaoyun Yu, 2010. "Corporate Fraud and Business Conditions: Evidence from IPOs," Journal of Finance, American Finance Association, vol. 65(6), pages 2255-2292, December.
    23. Michael J. Mazzeo, 2004. "Retail Contracting and Organizational Form: Alternatives to Chain Affiliation in the Motel Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 599-615, December.
    24. Glaeser, Edward L. & Saks, Raven E., 2006. "Corruption in America," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1053-1072, August.
    25. Efendi, Jap & Srivastava, Anup & Swanson, Edward P., 2007. "Why do corporate managers misstate financial statements? The role of option compensation and other factors," Journal of Financial Economics, Elsevier, vol. 85(3), pages 667-708, September.
    26. Hongbin Cai & Qiao Liu, 2009. "Competition and Corporate Tax Avoidance: Evidence from Chinese Industrial Firms," Economic Journal, Royal Economic Society, vol. 119(537), pages 764-795, April.
    27. Brett Hollenbeck, 2017. "The economic advantages of chain organization," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 1103-1135, December.
    28. Karpoff, Jonathan M & Lott, John R, Jr & Wehrly, Eric W, 2005. "The Reputational Penalties for Environmental Violations: Empirical Evidence," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 653-675, October.
    29. Uwe Dulleck & Rudolf Kerschbamer & Matthias Sutter, 2011. "The Economics of Credence Goods: An Experiment on the Role of Liability, Verifiability, Reputation, and Competition," American Economic Review, American Economic Association, vol. 101(2), pages 526-555, April.
    30. Henry S. Schneider, 2012. "Agency Problems and Reputation in Expert Services: Evidence from Auto Repair," Journal of Industrial Economics, Wiley Blackwell, vol. 60(3), pages 406-433, September.
    31. Jeffrey M. Wooldridge, 2005. "Fixed-Effects and Related Estimators for Correlated Random-Coefficient and Treatment-Effect Panel Data Models," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 385-390, May.
    32. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
    33. Emek Basker & Lucia Foster & Shawn Klimek, 2017. "Customer‐employee substitution: Evidence from gasoline stations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(4), pages 876-896, December.
    34. Jean-Francois Houde, 2012. "Spatial Differentiation and Vertical Mergers in Retail Markets for Gasoline," American Economic Review, American Economic Association, vol. 102(5), pages 2147-2182, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Balafoutas, Loukas & Kerschbamer, Rudolf, 2020. "Credence goods in the literature: What the past fifteen years have taught us about fraud, incentives, and the role of institutions," Journal of Behavioral and Experimental Finance, Elsevier, vol. 26(C).
    2. Balafoutas, Loukas & Fornwagner, Helena & Kerschbamer, Rudolf & Sutter, Matthias & Tverdostup, Maryna, 2020. "Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets," IZA Discussion Papers 13848, Institute of Labor Economics (IZA).
    3. Schneider, Tim & Meub, Lukas & Bizer, Kilian, 2021. "Consumer information in a market for expert services: Experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 94(C).
    4. Dan Amiram & Zahn Bozanic & James D. Cox & Quentin Dupont & Jonathan M. Karpoff & Richard Sloan, 2018. "Financial reporting fraud and other forms of misconduct: a multidisciplinary review of the literature," Review of Accounting Studies, Springer, vol. 23(2), pages 732-783, June.
    5. Fang Liu & Alexander Rasch & Marco A. Schwarz & Christian Waibel, 2020. "The role of diagnostic ability in markets for expert services," Working Papers 2020-07, Faculty of Economics and Statistics, University of Innsbruck.
    6. Alexander Rasch & Christian Waibel, 2018. "What Drives Fraud in a Credence Goods Market? – Evidence from a Field Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 80(3), pages 605-624, June.
    7. Bester, Helmut & Ouyang, Yaofu, 2018. "Optimal procurement of a credence good under limited liability," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 96-129.
    8. Kerschbamer, Rudolf & Neururer, Daniel & Sutter, Matthias, 2019. "Credence Goods Markets and the Informational Value of New Media: A Natural Field Experiment," IZA Discussion Papers 12184, Institute of Labor Economics (IZA).
    9. Ben Greiner & Le Zhang & Chengxiang Tang, 2017. "Separation of prescription and treatment in health care markets: A laboratory experiment," Health Economics, John Wiley & Sons, Ltd., vol. 26(S3), pages 21-35, December.
    10. Jian Zhang, 2018. "Public Governance and Corporate Fraud: Evidence from the Recent Anti-corruption Campaign in China," Journal of Business Ethics, Springer, vol. 148(2), pages 375-396, March.
    11. Dulleck, Uwe & Kerschbamer, Rudolf & Konovalov, Alexander, 2014. "Too Much or Too Little? Price-Discrimination in a Market for Credence Goods," Working Papers in Economics 582, University of Gothenburg, Department of Economics, revised Apr 2014.
    12. Silvia Angerer & Daniela Glätzle-Rützler & Christian Waibel, 2021. "Trust in health care credence goods: Experimental evidence on framing and subject pool effects," Working Papers 2021-13, Faculty of Economics and Statistics, University of Innsbruck.
    13. Beck, Adrian & Kerschbamer, Rudolf & Qiu, Jianying & Sutter, Matthias, 2014. "Car mechanics in the lab––Investigating the behavior of real experts on experimental markets for credence goods," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 166-173.
    14. Huck, Steffen & Lünser, Gabriele & Spitzer, Florian & Tyran, Jean-Robert, 2016. "Medical insurance and free choice of physician shape patient overtreatment: A laboratory experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PB), pages 78-105.
    15. repec:cgr:cgsser:03-07 is not listed on IDEAS
    16. Jost, Peter-J. & Reik, Steffen & Ressi, Anna, 2021. "The information paradox in a monopolist’s credence goods market," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    17. Tang, Johnny Jiahao, 2020. "Individual heterogeneity and cultural attitudes in credence goods provision," European Economic Review, Elsevier, vol. 126(C).
    18. Momsen, Katharina, 2021. "Recommendations in credence goods markets with horizontal product differentiation," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 19-38.
    19. Utgård, Jakob & Nygaard, Arne & Dahlstrom, Robert, 2015. "Franchising, local market characteristics and alcohol sales to minors," Journal of Business Research, Elsevier, vol. 68(10), pages 2117-2124.
    20. Fong, Yuk-fai & Liu, Ting, 2018. "Liability and reputation in credence goods markets," Economics Letters, Elsevier, vol. 166(C), pages 35-39.
    21. Bruno Lanz & Evert Reins, 2019. "Asymmetric information on the market for energy efficiency: Insights from the credence goods literature," IRENE Working Papers 19-03, IRENE Institute of Economic Research.

    More about this item

    Keywords

    Fuel fraud; Fuel price; Gas station;
    All these keywords.

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:76:y:2021:i:c:s0167718721000126. 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: . General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.