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Compliance with Endogenous Audit Probabilities
Author(s) -
Konrad Kai A.,
Lohse Tim,
Qari Salmai
Publication year - 2017
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12182
Subject(s) - audit , compliance (psychology) , officer , affect (linguistics) , accounting , business , stochastic game , face (sociological concept) , actuarial science , economics , psychology , social psychology , microeconomics , law , political science , social science , communication , sociology
In this paper, we study the effect of endogenous audit probabilities on reporting behavior in a face‐to‐face compliance situation, such as at customs. In an experimental setting in which underreporting has a higher expected payoff than truthful reporting, we find an increase in compliance of about 80 percent if subjects have reason to believe that their behavior towards an officer influences their endogenous audit probability. Higher compliance is driven by considerations about how their own appearance and performance affect their audit probability, rather than by the social and psychological effects of face‐to‐face contact.