Cost Padding, Auditing and Collusion
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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.
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Other versions of this item:
- Jean-Jacques Laffont & Jean Tirole, 1992. "Cost Padding, Auditing and Collusion," Annals of Economics and Statistics, GENES, issue 25-26, pages 205-226.
- Laffont, Jean-Jacques & Tirole, Jean, 1991. "Cost Padding, Auditing and Collusion," IDEI Working Papers 1, Institut d'Économie Industrielle (IDEI), Toulouse.
Citations
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Cited by:
- Bernard Gauthier & Jonathan Goyette, 2016.
"Fiscal policy and corruption,"
Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(1), pages 57-79, January.
- Bernard Gauthier & Jonathan Goyette, 2012. "Fiscal policy and corruption," Cahiers de recherche 12-09, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
- Chu, Leon Yang & Sappington, David E.M., 2009. "Procurement contracts: Theory vs. practice," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 51-59, January.
- Kofman, Fred & Lawarree, Jacques, 1996.
"On the optimality of allowing collusion,"
Journal of Public Economics, Elsevier, vol. 61(3), pages 383-407, September.
- Kofman, F. & Lawarree, J., 1993. "On the Optimality of Allowing Collusion," Working Papers 93-02, University of Washington, Department of Economics.
- Kofman, F. & Lawarree, J., 1993. "On the Optimality of Allowing Collusion," Discussion Papers in Economics at the University of Washington 93-02, Department of Economics at the University of Washington.
- Lulfesmann, Christoph, 2002. "Partial monitoring, adverse selection, and the internal efficiency of the firm," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1097-1118, October.
- Ganuza, Juan Jose & Gomez, Fernando, 2007. "Should we trust the gatekeepers?: Auditors' and lawyers' liability for clients' misconduct," International Review of Law and Economics, Elsevier, vol. 27(1), pages 96-109, March.
- Anke S. Kessler & Christoph Lülfesmann, 2002. "Monitoring and Productive Efficiency in Public and Private Firms," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(2), pages 167-187, February.
- Chu, Leon Yang & Sappington, David E.M., 2007. "A note on optimal procurement contracts with limited direct cost inflation," Journal of Economic Theory, Elsevier, vol. 137(1), pages 745-753, November.
- Chiappinelli, Olga, 2020.
"Political corruption in the execution of public contracts,"
Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 116-140.
- Chiappinelli, Olga, 2016. "Political corruption in the execution of public contracts," MPRA Paper 73487, University Library of Munich, Germany.
- Olga Chiappinelli, 2016. "Political Corruption in the Execution of Public Contracts," Discussion Papers of DIW Berlin 1607, DIW Berlin, German Institute for Economic Research.
- Anke S. Kessler, 2004. "Optimal Auditing in Hierarchical Relationships," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(2), pages 210-231, June.
- Thierry Pénard & Saïd Souam, 2002.
"Collusion et politique de la concurrence en information asymétrique,"
Annals of Economics and Statistics, GENES, issue 66, pages 209-233.
- Thierry Penard & Saïd Souam, 1999. "Collusion et politique de la concurrence en information asymétrique," Working Papers 99-26, Center for Research in Economics and Statistics.
- Thierry Pénard & S. Souam, 2002. "Collusion et politique de la concurrence en information asymétrique," Post-Print halshs-00069687, HAL.
- Manelli, Alejandro M & Vincent, Daniel R, 1995.
"Optimal Procurement Mechanisms,"
Econometrica, Econometric Society, vol. 63(3), pages 591-620, May.
- Alejandro M. Manelli & Daniel R. Vincent, 1992. "Optimal Procurement Mechanisms," Discussion Papers 999, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hsiao-Chi Chen & Shi-Miin Liu, 2009. "An emission tax pollution control system with imperfect monitoring," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 10(1), pages 21-40, March.
- Cremer, Helmuth & Gahvari, Firouz, 1996. "Tax evasion and the optimum general income tax," Journal of Public Economics, Elsevier, vol. 60(2), pages 235-249, May.
- Kessler, Anke S., 2000. "On Monitoring and Collusion in Hierarchies," Journal of Economic Theory, Elsevier, vol. 91(2), pages 280-291, April.
- Hsiao-Chi Chen & Shi-Miin Liu, 2009. "An emission tax pollution control system with imperfect monitoring," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 10(1), pages 21-40, March.
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