The social welfare implications of industry self-auditing

Friesen, Lana (2006) The social welfare implications of industry self-auditing. Journal of Environmental Economics and Management, 51 3: 280-294. doi:10.1016/j.jeem.2005.08.002

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Author Friesen, Lana
Title The social welfare implications of industry self-auditing
Journal name Journal of Environmental Economics and Management   Check publisher's open access policy
ISSN 0095-0696
Publication date 2006-05-01
Year available 2006
Sub-type Article (original research)
DOI 10.1016/j.jeem.2005.08.002
Volume 51
Issue 3
Start page 280
End page 294
Total pages 15
Place of publication New York
Publisher Academic Press
Language eng
Subject 140205 Environment and Resource Economics
Abstract The Environmental Protection Agency's (EPA's) audit policy authorizes reduced penalties for firms that voluntarily undertake compliance audits and then correct and report any discovered violations to the agency. While the EPA claims the policy is a success, this paper joins a growing literature in questioning that claim. A game-theoretic model of the audit policy is developed where the goal of enforcement is remediation and the agency is unable to commit to a pre-announced inspection policy. Self-auditing is beneficial because it permits both self-reporting and self-policing to occur; however additional costs are imposed on firms. Self-auditing is more likely to be socially beneficial when the damages caused by violations are large. The current audit policy explicitly excludes violations that result in serious actual or potential harm. When violations are small, as most current disclosures under the audit policy are, firm self-auditing is likely to increase social costs.
Keyword Audit
Enforcement
Self-policing
Inspection
Q-Index Code C1

Document type: Journal Article
Sub-type: Article (original research)
Collections: Excellence in Research Australia (ERA) - Collection
School of Economics Publications
 
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Citation counts: TR Web of Science Citation Count  Cited 11 times in Thomson Reuters Web of Science Article | Citations
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