Social and private insurance schemes rely on legal action to deter fraud and tax evasion. This observation guides the authors to introduce a random state verification technology in a dynamic economy with private information. With some probability, an agent's skill level becomes known to the...

We consider a principal-agent model where the agent is a taxpayer and the principal is a tax authority. The principal wants to know the agent’s private information (e.g. emission or income) so that she can then assign a tax to the agent. It is mandatory for the taxpayer to report his...