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http://ssrn.com/abstract=1281089
 
 

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Brandeis' Policeman: Results from a Laboratory Experiment on How to Prevent Corporate Fraud


Michael D. Guttentag


Loyola Law School Los Angeles

Christine Porath


University of Southern California - Marshall School of Business; Georgetown University - Department of Management

Samuel N. Fraidin


Gregory P. Joseph Law Offices LLC

June 1, 2008

Journal of Empirical Legal Studies, Vol. 5, No. 2, July 2008
Loyola-LA Legal Studies Paper No. 2009-24

Abstract:     
We use a laboratory experiment to study how to prevent corporate fraud. Our experiment is the first to replicate the salient features of corporate fraud in a controlled setting. We find that requiring additional disclosures significantly reduces fraud. This finding runs counter to implications from previous research, but that research does not include many of the defining aspects of corporate fraud. Our results support the federal government's continued reliance on disclosure as a way to reduce fraud, a reliance that dates back to Louis Brandeis' observation that publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.

Number of Pages in PDF File: 37

Keywords: Fraud, Disclosure, Experimental Economics, Cooperative Games, Group Behavior

JEL Classification: C71, C92, D21, D23, D71, K14, K22

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Date posted: October 10, 2008 ; Last revised: March 27, 2012

Suggested Citation

Guttentag, Michael D. and Porath, Christine and Fraidin, Samuel N., Brandeis' Policeman: Results from a Laboratory Experiment on How to Prevent Corporate Fraud (June 1, 2008). Journal of Empirical Legal Studies, Vol. 5, No. 2, July 2008; Loyola-LA Legal Studies Paper No. 2009-24. Available at SSRN: http://ssrn.com/abstract=1281089

Contact Information

Michael D. Guttentag (Contact Author)
Loyola Law School Los Angeles ( email )
919 Albany Street
Los Angeles, CA 90015-1211
United States
Christine Porath
University of Southern California - Marshall School of Business ( email )
701 Exposition Blvd
Los Angeles, CA 90089
United States

Georgetown University - Department of Management
3700 O Street, NW
Washington, NY 20057
United States

Samuel N. Fraidin
Gregory P. Joseph Law Offices LLC
805 Third Avenue, 31st Floor
New York, NY 10022
United States
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