Article ID Journal Published Year Pages File Type
5062625 Economics Letters 2006 5 Pages PDF
Abstract

We analyze a model where both a regulator and a firm may detect and stop bad projects. We show that full auditing by the regulator may be socially suboptimal even with zero auditing costs. The reason is that the firm's own auditing incentive may be crowded out when protected by limited liability. The optimal policy depends on the firm's wealth.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
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