A Difficulty with Oaths: On Trust, Trustworthiness, and Signalling
In the wake of the Enron and Worldcom financial scandals that rocked Wall Street in 2002, the US government’s financial regulatory body, the Security and Exchange Commission (SEC) took the unprecedented step in June 2002 of requiring that the chief executives and chief financial officers of America’s 947 biggest companies to swear on oath that their company results and financial reports were to the best of their knowledge accurate. The one-off order was quickly followed by the passing of the Sarbanes-Oxely act, which will require many more CEOs and CFOs to certify their company reports and financial statements at regular intervals. In this paper we apply a simple signalling model to examine whether or not this type of institutional signal of trustworthiness is always efficient. We find that in the presence of signalling costs, the separating equilibrium can be socially inefficient as well as causing a general loss of trust.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.bepress.com/gwp/default/|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Winand Emons, 2001.
"Perjury versus Truth-Revelation: Quantity or Quality of Testimony,"
dp0103, Universitaet Bern, Departement Volkswirtschaft.
- Winand Emons, 2005. "Perjury versus Truth Revelation: Quantity or Quality of Testimony," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(3), pages 392-, September.
- Basu, Kaushik, 2003.
"Prelude to Political Economy: A Study of the Social and Political Foundations of Economics,"
Oxford University Press, number 9780199261857, March.
- Basu, Kaushik, 2000. "Prelude to Political Economy: A Study of the Social and Political Foundations of Economics," OUP Catalogue, Oxford University Press, number 9780198296713, March.
- Coleman, James S, 1984. "Introducing Social Structure into Economic Analysis," American Economic Review, American Economic Association, vol. 74(2), pages 84-88, May.
- Chatterjee, Kalyan & Samuelson, Larry, 1990.
"Perfect Equilibria in Simultaneous-Offers Bargaining,"
International Journal of Game Theory,
Springer, vol. 19(3), pages 237-67.
- Chatterjee, K. & Samuelson, L., 1989. "Perfect Equilibria In Simultaneous- Offers Bargaining," Papers 12-87-3, Pennsylvania State - Department of Economics.
- Basu, Kaushik, 1989. "A Theory of Association: Social Status, Prices and Markets," Oxford Economic Papers, Oxford University Press, vol. 41(4), pages 653-71, October.
- David Kreps & Robert Wilson, 1998.
Levine's Working Paper Archive
237, David K. Levine.
- H. Lorne Carmichael & W. Bentley MacLeod, 1997.
"Gift Giving and the Evolution of Cooperation,"
Boston College Working Papers in Economics
338., Boston College Department of Economics.
- Friedel Bolle, 2001. "Why to Buy Your Darling Flowers: On Cooperation and Exploitation," Theory and Decision, Springer, vol. 50(1), pages 1-28, February.
- Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
- Akerlof, George A, 1976. "The Economics of Caste and of the Rat Race and Other Woeful Tales," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 599-617, November.
- Coleman, James S, 1991. "Constructed Organization: First Principles," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 7-23, Special I.
When requesting a correction, please mention this item's handle: RePEc:bep:dewple:2003-1-1055. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.