|
EconStor >
University of Minnesota >
Department of Economics - Center for Economic Research, University of Minnesota >
Minnesota Working Papers, Department of Economics - Center for Economic Research, University of Minnesota >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/23499
|
| | |
| Title: | | The Market for Liars: Reputation and Auditor Honesty  |
| Authors: | | McLennan, Andrew |
| Issue Date: | | 2003 |
| Series/Report no.: | | Minnesota working papers / University of Minnesota, Center for Economic Research, Department of Economics 321 |
| Abstract: | | In the model there are two types of financial auditors with identical technology, one of which is endowed with a prior reputation for honesty. We characterize conditions under which there exists a "two-tier equilibrium" in which "reputable" auditors refuse bribes offered by clients for fear of losing reputation, while "disreputable" auditors accept bribes because even persistent refusal does not create a good reputation. The main findings are: (a) honest auditors charge higher fees, and have economic profits accruing to reputation; (b) as the fraction of auditors who are honest increases, the premium charged by reputable auditors eventually decreases, which diminishes the incentive to refuse bribes; (c) if the fraction of honest auditors exceeds an upper bound, there does not exist a two-tier equilibrium; (d) thus the reputation mechanism may be undermined by entry into the honest segment of the industry, if it is possible; (e) increasing auditor independence increases the upper bound. |
| JEL: | | D82 M41 G14 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Minnesota Working Papers, Department of Economics - Center for Economic Research, University of Minnesota
|
| Files in This Item:
| |
|
| No. of Downloads:
| |
| last Month |
last 3 Month |
total |
|
|
|
|
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/23499
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|