- Understanding contract audits: An experimental approach
- Number of pages
- Barcelona: Universitat Autònoma de Barcelona, Departament d'Economia de l'Empresa
- Document type
- Working paper
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
Contract audits aimed at reducing information asymmetry are frequently used in imperfect markets such as defence procurement. This contradicts predictions from standard economic theory. We conduct a laboratory experiment to investigate this paradox. Our laboratory setup allows us to investigate the conditions under which individuals decide to initiate a contract audit and to precisely assess its economic value. Our theoretical approach draws upon two distinct literatures. The theory of planned behaviour explains why organizations may engage in contract auditing even when markets are imperfect. Social preference theory explains why traders may adjust prices when a contract audit indicates that the original price yields an inequitable distribution of the surplus. Our results indeed show that audits lead to an increased share of the surplus for the buyer, but this increased welfare is completely offset by the audit costs. To further investigate motivations to initiate contract audits, we measure our subjects' attitudes towards contract auditing and their level of perceived behavioral control; and we manipulate subjective norms about having contract audits done. These treatments show that a positive attitude toward contract auditing, enhanced perceived behavioural control, and pressure to perform a contract audit all lead to more contract audits.
If you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library, or send a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible.