Ambiguity on Audits and Cooperation in a Public Goods Game

51 Pages Posted: 15 Feb 2014

See all articles by Zhixin Dai

Zhixin Dai

School of Finance, Renmin University of China; GATE CNRS UMR 5824; University of Lyon

Robin M. Hogarth

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Marie Claire Villeval

Groupe d'Analyse et de Théorie Economique (GATE), CNRS; IZA Institute of Labor Economics; Global Labor Organization (GLO)

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Abstract

We investigate the impact of various audit schemes on the future provision of public goods, when contributing less than the average of the group is sanctioned exogenously and the probability of an audit is unknown. We study how individuals update their beliefs about the probability of being audited, both before and after audits are definitely withdrawn. We find that when individuals have initially experienced systematic audits, they decrease both their beliefs and their contributions almost immediately after audits are withdrawn. In contrast, when audits were initially less frequent and more irregular, they maintain high beliefs about the probability of being audited and continue cooperating long after audits have been withdrawn. Inconsistency in experiencing audits across time clearly increases the difficulty of learning the true audit probabilities. Thus, conducting less frequent and irregular audits with higher fines can increase efficiency dramatically.

Keywords: ambiguity, audits, sanctions, beliefs, cooperation, public goods, experiment

JEL Classification: C92, H41, D83

Suggested Citation

Dai, Zhixin and Hogarth, Robin M. and Villeval, Marie Claire, Ambiguity on Audits and Cooperation in a Public Goods Game. IZA Discussion Paper No. 7932, Available at SSRN: https://ssrn.com/abstract=2396427

Zhixin Dai (Contact Author)

School of Finance, Renmin University of China ( email )

59 Zhongguancun Street
Beijing, 100872
China

GATE CNRS UMR 5824 ( email )

93 Chemin des Mouilles
Ecully, 69009
France

University of Lyon ( email )

Faculté de Sciences Economiques et de Gestion
16, quai Claude Bernard
Lyon, 69007
France

Robin M. Hogarth

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
34 93 542 2561 (Phone)
34 93 542 1746 (Fax)

Marie Claire Villeval

Groupe d'Analyse et de Théorie Economique (GATE), CNRS ( email )

93, chemin des Mouilles
Ecully, 69130
France
+33 472 86 60 79 (Phone)
+33 472 86 60 90 (Fax)

HOME PAGE: http://www.gate.cnrs.fr/equipe/perso/villeval/villeval.html

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Global Labor Organization (GLO) ( email )

Collogne
Germany

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