Paul J. Beck

A comparison of bribery and bidding in thin markets

Abstract This paper compares bribery to competitive bidding in a government purchasing context. While competitive bidding is one method of procurement, bribery is a common alternative in many Third World countries. Although bribery is often considered to be the ethical antithesis of competitive bidding, the analysis shows there is a fundamental isomorphism between bribery and competitive bidding on the supply side of the transaction.

An economic analysis of competitive bidding for public sector audit engagements

Abstract This study presents and tests an equilibrium pricing model for a public sector audit engagement. The bidding models predictive accuracy was evaluated by comparing its predictions to the actual bids for a public sector audit engagement and to the predictions of an OLS regression model. The results are that predicted bids exhibited considerable variability and that associated prediction errors were sensitive to the underlying cost parameters. While the bidding model provided reasonably accurate predictions for the entire group of firms, it systematically overestimated the winning (lowest) bid. Possible explanations for this result are advanced and empirical implications are discussed.

Taxpayer Disclosure and Penalty Laws

The consequences of a penalty exemption available to U.S. taxpayers who disclose aggressive reporting positions is examined via a game theoretic model. Results indicate that (i) the tax agencys expected revenue collections (net of audit costs) decline under the disclosure exemption, and (ii) the impact of disclosure regulations depends on the taxpayers type. Of particular interest, we find that taxpayers who are likely to prevail on an uncertain issue decrease their expected payments although they do not disclose in equilibrium. The impact on the amount of resources absorbed by the tax collection process is also examined. Copyright 2000 by Blackwell Publishing Inc.

Litigation Risk and Audit Fees: The Impact of Qualitative Factors

Using D&O insurance premia from the 2001-2004 Tillinghast D&O insurance surveys as a proxy for litigation risk, we show that audit fees are positively associated with litigation risk even after controlling for several quantitative risk factors known to influence both the insurance premium and audit fee. We attribute this positive association to the parallel development of risk assessment expertise by both D&O insurers and auditors and to their overlapping sources of qualitative risk information. The significant association between D&O premia and audit fees also provides external validation for the auditor’s risk assessment process. Finally, we partition accounting firms based on their audit methodologies and find that the audit fees charged by risk-based auditors are more strongly associated with litigation risk than those charged by firms using more traditional audit approaches.