Sorting the Good Guys from Bad: On the Optimality of Deterministic Audit with Ex-Ante Information Acquisition

Research output: Working paper

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Sorting the Good Guys from Bad: On the Optimality of Deterministic Audit with Ex-Ante Information Acquisition. / Simmons, Peter Jeremy.

CSEF Working Papers, 2012.

Research output: Working paper

Harvard

Simmons, PJ 2012 'Sorting the Good Guys from Bad: On the Optimality of Deterministic Audit with Ex-Ante Information Acquisition' CSEF Working Papers. < http://www.csef.it/WP/wp201.pdf>

APA

Simmons, P. J. (2012). Sorting the Good Guys from Bad: On the Optimality of Deterministic Audit with Ex-Ante Information Acquisition. CSEF Working Papers. http://www.csef.it/WP/wp201.pdf

Vancouver

Simmons PJ. Sorting the Good Guys from Bad: On the Optimality of Deterministic Audit with Ex-Ante Information Acquisition. CSEF Working Papers. 2012.

Author

Simmons, Peter Jeremy. / Sorting the Good Guys from Bad: On the Optimality of Deterministic Audit with Ex-Ante Information Acquisition. CSEF Working Papers, 2012.

Bibtex - Download

@techreport{84ba487d6361498ab75ba95a28f4233f,
title = "Sorting the Good Guys from Bad: On the Optimality of Deterministic Audit with Ex-Ante Information Acquisition",
abstract = "In a costly state verification setup, a principal entering a contract with an ex-post informed agent, as well as auditing, has the option of acquiring costly imperfect information about future revenues either before or after the contract is agreed. If acquired, information immediately becomes public. We find that it may be optimal to gather information either for sure or randomly but only after the contract. When acquired, information improves targeting of audit reducing the inefficiencies associated with it. This is obtained by auditing deterministically after favourable signal realisations and never after unfavourable ones. When no signal is collected as a result of randomisation in information acquisition, audits either occur deterministically or never, depending on whether the principal breaks even upon signal acquisition. Interpreted in the context of tax auditing, the results provide a rationale for the tax agencies widespread reliance on presumptive taxation methods.",
author = "Simmons, {Peter Jeremy}",
note = "Now accepted for publication in Economic theory DOI 10.1007/s00199-014-0818-y",
year = "2012",
language = "English",
publisher = "CSEF Working Papers",
type = "WorkingPaper",
institution = "CSEF Working Papers",

}

RIS (suitable for import to EndNote) - Download

TY - UNPB

T1 - Sorting the Good Guys from Bad: On the Optimality of Deterministic Audit with Ex-Ante Information Acquisition

AU - Simmons, Peter Jeremy

N1 - Now accepted for publication in Economic theory DOI 10.1007/s00199-014-0818-y

PY - 2012

Y1 - 2012

N2 - In a costly state verification setup, a principal entering a contract with an ex-post informed agent, as well as auditing, has the option of acquiring costly imperfect information about future revenues either before or after the contract is agreed. If acquired, information immediately becomes public. We find that it may be optimal to gather information either for sure or randomly but only after the contract. When acquired, information improves targeting of audit reducing the inefficiencies associated with it. This is obtained by auditing deterministically after favourable signal realisations and never after unfavourable ones. When no signal is collected as a result of randomisation in information acquisition, audits either occur deterministically or never, depending on whether the principal breaks even upon signal acquisition. Interpreted in the context of tax auditing, the results provide a rationale for the tax agencies widespread reliance on presumptive taxation methods.

AB - In a costly state verification setup, a principal entering a contract with an ex-post informed agent, as well as auditing, has the option of acquiring costly imperfect information about future revenues either before or after the contract is agreed. If acquired, information immediately becomes public. We find that it may be optimal to gather information either for sure or randomly but only after the contract. When acquired, information improves targeting of audit reducing the inefficiencies associated with it. This is obtained by auditing deterministically after favourable signal realisations and never after unfavourable ones. When no signal is collected as a result of randomisation in information acquisition, audits either occur deterministically or never, depending on whether the principal breaks even upon signal acquisition. Interpreted in the context of tax auditing, the results provide a rationale for the tax agencies widespread reliance on presumptive taxation methods.

M3 - Working paper

BT - Sorting the Good Guys from Bad: On the Optimality of Deterministic Audit with Ex-Ante Information Acquisition

PB - CSEF Working Papers

ER -