We analyze corporate fraud in a model where managers have superior information but, due to private benefits from empire building, are biased against liquidation. This may induce them to misreport information and even bribe auditors when liquidation would be value-increasing. To restrain fraud,...

When firms' research can lead to potentially harmful innovations, public intervention may thwart their incentives to undertake research by reducing its expected profitability (average deterrence) and may guide the use of innovation (marginal deterrence). We compare four policy regimes: laissez...

Stricter laws require more incisive and costlier enforcement. Because enforcement activity depends both on available tax revenue and the honesty of officials, the optimal legal standard of a benevolent government is increasing in per capita income and decreasing in officials' corruption. In...

Stricter laws require more incisive and costlier enforcement. Since enforcement activity depends both on available tax revenue and the honesty of officials, the optimal legal standard of a benevolent government is increasing in per-capita income and decreasing in officials’ corruption. In...

When firms' research can lead to potentially harmful innovations, public intervention may thwart their incentives to undertake research by reducing its expected profitability (average deterrence) and may guide the use of innovation (marginal deterrence). We compare four policy regimes: laissez...

We study regulation of the auditing profession in a model where audit quality is unobservable and enforcing regulation is costly. The optimal audit standard falls short of the first-best audit quality, and is increasing in the riskiness of firms and in the amount of funding they seek. The model...

We analyze corporate fraud in a setting in which managers have superior information but are biased against liquidation, because of their private benefits from empire building. This may induce them to misreport information and even bribe auditors when liquidation would be value-increasing. To...

We analyze optimal policy design when firms' research activity may lead to socially harmful innovations. Public intervention, affecting the expected profitability of innovation, may both thwart the incentives to undertake research (average deterrence) and guide the use to which innovation is put...

We analyze optimal policy design when firms' research activity may lead to socially harmful innovations. Public intervention, affecting the expected profitability of innovation, may both thwart the incentives to undertake research (average deterrence) and guide the use to which innovation is put...

We study regulation of the auditing profession in a model where audit quality is unobservable and enforcing regulation is costly. The optimal audit standard falls short of the first-best audit quality, and is increasing in the riskiness of firms and in the amount of funding they seek. The model...