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Optimal Audit Policy and Heterogenous Agents

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  • Marisa Ratto
  • Thibaud Verge

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.

Suggested Citation

  • Marisa Ratto & Thibaud Verge, 2002. "Optimal Audit Policy and Heterogenous Agents," The Centre for Market and Public Organisation 02/054, The Centre for Market and Public Organisation, University of Bristol, UK.
    • Handle: RePEc:bri:cmpowp:02/054
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    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp54.pdf
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    References listed on IDEAS

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    1. Hindriks, J., 1994. "Income Tax Compliance: The No-Commitment Game," Papers 149, Notre-Dame de la Paix, Sciences Economiques et Sociales.
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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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