A strategic approach for the crime of tax evasion

2019 ◽  
Vol 26 (2) ◽  
pp. 477-487
Author(s):  
Bruno Chiarini ◽  
Elisabetta Marzano
Keyword(s):  
Private Information ◽  
Tax Evasion ◽  
Common Knowledge ◽  
Comparative Statics ◽  
Necessary Condition ◽  
Theoretic Approach ◽  
Mixed Strategies ◽  
Content Type ◽  
Bayesian Equilibrium ◽  
Pure Strategies

Purpose Crime games cannot be simply read with mixed strategies. These strategies are inconclusive of how the players act rationally. This is undeniably true for the crime of tax evasion, where dishonest taxpayers are rational agents, motivated by the comparison of payoffs, when considering the risk of non-compliance. The purpose of this paper is to illustrate that in the presence of a small “private disturbance” of the players’ payoff, the Nash equilibrium in mixed strategies provides us with the necessary information on equilibria in pure strategies that will be played. Design/methodology/approach In tax-evasion games, an equilibrium must necessarily be interpreted in pure strategies, and the only way to do this is to insert some private information into the game and reinterpret it in a Bayesian scheme. We show that taxpayers’ private,subjective considerations on the effective implementation of the penalty and the revenue agency’s private information on the cost of monitoring and conviction can lead to Bayesian equilibria in pure strategies. The present paper takes issue with this Bayesian equilibrium and the implications for comparative-statics results. Findings In this context, tougher sentencing deters crime, although, as the Italian experience teaches, the necessary condition required is the certainty of punishment and the ability of the government to enforce it. The equilibrium strategies with incomplete information reveal whether it is convenient for the two agents to maintain their “private disturbance” as private information or, on the contrary, it is convenient to expect it to be “common knowledge.” Originality/value A distinct set of studies has adopted a game theoretic approach and shows that the standard economic approach to crime deterrence inspired by Gary Beker’s seminal paper might be flawed. See, among others, Saha and Poole (2000), Tsebelis (1989) and Andreozzi (2010). This paper shows that a greater severity of the penalty and a higher certainty of punishment (a lower possibility of appealing against sanctions and no discounts on due penalties) necessarily lead to a unique Bayesian equilibrium without evasion.

scholarly journals Outsourcing under incomplete information

2017 ◽  
Vol 10 (1) ◽  
pp. 3-15 ◽  
Author(s):  
Tarun Kabiraj ◽  
Uday Bhanu Sinha
Keyword(s):  
Asymmetric Information ◽  
Incomplete Information ◽  
Private Information ◽  
Low Cost ◽  
Complete Information ◽  
Fixed Cost ◽  
Perfect Bayesian Equilibrium ◽  
Content Type ◽  
Bayesian Equilibrium ◽  
Plant Level

Purpose The purpose of this paper is to show that outsourcing can occur as outcome of a separating or pooling perfect Bayesian equilibrium although it is not profitable under complete information. Therefore, asymmetric information can itself be a reason for outsourcing. Design/methodology/approach The present paper constructs a model of two firms interacting in the product market under asymmetric information where one firm has private information about its technological capability, and it has the option to produce inputs in-house or buy inputs from an input market. However, using outsourced inputs involves a fixed cost at the plant level. The model solves for perfect Bayesian equilibrium. Findings There are situations when under complete information, outsourcing of the input will not occur, but, under incomplete information, either only the low-cost type or both high and low-cost types will go for outsourcing, and there always exist reasonable beliefs supporting these equilibria. In particular, when the fixed cost is neither too small not too large, a separating equilibrium occurs in which the low-cost type outsources inputs from the input market but the high-cost type produces in-house; hence, outsourcing signals the firm’s type. Outsourcing by only the high-cost type firm will never occur in equilibrium. Originality/value That incomplete or asymmetric information can itself be a reason for strategic outsourcing is never identified in the literature. The present paper is an attempt to fill this gap and raise the issue of outsourcing in an incomplete information environment.

Does uncertainty boost overconfidence? The case of financial analysts' forecasts

2014 ◽  
Vol 40 (3) ◽  
pp. 300-324 ◽  
Author(s):  
Véronique Bessière ◽  
Taoufik Elkemali
Keyword(s):  
Stock Returns ◽  
Private Information ◽  
High Tech ◽  
Cross Sectional ◽  
Forecast Dispersion ◽  
Content Type ◽  
The Public ◽  
Public Announcement ◽  
Before And After ◽  
Sectional Analysis

Purpose – This article aims to examine the link between uncertainty and analysts' reaction to earnings announcements for a sample of European firms during the period 1997-2007. In the same way as Daniel et al., the authors posit that overconfidence leads to an overreaction to private information followed by an underreaction when the information becomes public. Design/methodology/approach – In this study, the authors test analysts' overconfidence through the overreaction preceding a public announcement followed by an underreaction after the announcement. If overconfidence occurs, over- and underreactions should be, respectively, observed before and after the public announcement. If uncertainty boosts overconfidence, the authors predict that these two combined misreactions should be stronger when uncertainty is higher. Uncertainty is defined according to technology intensity, and separate two types of firms: high-tech or low-tech. The authors use a sample of European firms during the period 1997-2007. Findings – The results support the overconfidence hypothesis. The authors jointly observe the two phenomena of under- and overreaction. Overreaction occurs when the information has not yet been made public and disappears just after public release. The results also show that both effects are more important for the high-tech subsample. For robustness, the authors sort the sample using analyst forecast dispersion as a proxy for uncertainty and obtain similar results. The authors also document that the high-tech stocks crash in 2000-2001 moderated the overconfidence of analysts, which then strongly declined during the post-crash period. Originality/value – This study offers interesting insights in two ways. First, in the area of financial markets, it provides a test of a major over- and underreaction model and implements it to analysts' reactions through their revisions (versus investors' reactions through stock returns). Second, in a broader way, it deals with the link between uncertainty and biases. The results are consistent with the experimental evidence and extend it to a cross-sectional analysis that reinforces it as pointed out by Kumar.

The translocation of organizational practices – knowledge creation in Greenfield Plants

2014 ◽  
Vol 21 (2) ◽  
pp. 83-97
Author(s):  
Arne Lindseth Bygdås
Keyword(s):  
Knowledge Transfer ◽  
Process Model ◽  
Social Dynamics ◽  
Common Knowledge ◽  
Transmission Model ◽  
Cultural Learning ◽  
Organizational Practice ◽  
Organizational Practices ◽  
Content Type ◽  
The Social

Purpose – The literature on knowledge transfer is dominated by a one-way transmission model logic where knowledge is captured and transferred from one source to another, assuming the source and receiver resemble each other and have some common knowledge. The social learning processes, what is learned and the phases and sequences of the developmental processes by which learning take place are more or less black boxed in the literature. This paper investigates the social dynamics of the formation and shaping of organizational practice from scratch in a greenfield organizational setting where no prior organizational practice exist. Design/methodology/approach – The paper builds on a case study approach applied in two greenfield organizational settings. A descriptive process model is developed to analyze the translocation and sociogenesis of organizational practices. Findings – A transfer-approach provides a too simplistic and narrow understanding of the process of “moving” organizational practices. Establishing an organizational practice can be described as a community of knowing “in the making” following various modes of cultural learning characterised by mutual adjustments, joint interactions, and alignment of shared understandings, and as such is more learned than transferred. Practical implications – The process model developed in the paper provides a platform for better understanding, planning and execution of intra-firm knowledge transfer and regeneration. Originality/value – The paper provides an in-depth empirical analysis of organizational practice generation from scratch emphasizing the social dynamics and co-construction of meaning when a collective capability is being acquired and built up.

The gamification of trust: the case of China’s “social credit”

2018 ◽  
Vol 36 (1) ◽  
pp. 93-107 ◽  
Author(s):  
Zahy Ramadan
Keyword(s):  
Conceptual Framework ◽  
Tax Evasion ◽  
Credit Rating ◽  
Rating System ◽  
Credit System ◽  
Content Type ◽  
Social Credit ◽  
Chinese Business ◽  
Area Of Interest ◽  
New Business

Purpose China is establishing a social credit rating system with the aim to score the trust level of citizens. The scores will be based on an integrated database that includes a vast range of information sources, rating aspects like professional conduct, corruption, type of products bought, peers’ own scores and tax evasion. While this form of gamification is expected to have dire consequences on brands and consumers alike, the literature in that particular area of interest remains non-existent. The paper aims to discuss these issues. Design/methodology/approach A conceptual framework is suggested that highlights early on the risks and implications on brands and companies operating in that particular upcoming landscape. Findings The gamification of trust that the social credit system focuses on presents potential risks on brand and consumer relationships. This in turn will affect brand sustainability vis-à-vis the expected drastic changes in the Chinese business landscape. This study suggests the strategies to follow which will be of high interest to companies, consumers, as well as to the Chinese authorities during and after implementation stage. Originality/value This paper is amongst the first to discuss the potential effects of the Chinese social credit rating system on brands. The conceptual framework fills a sizeable gap in the literature and pioneers the discussion on potential dilemmas brands will be faced with within this new business landscape.

A principal component analysis of the determinants of spatial disparity between rural and urban localities of Ghana

2017 ◽  
Vol 44 (6) ◽  
pp. 715-731 ◽  
Author(s):  
Ivy Drafor
Keyword(s):  
Principal Component Analysis ◽  
Rural Areas ◽  
Urban Areas ◽  
Principal Component ◽  
Component Analysis ◽  
Spatial Inequality ◽  
Necessary Condition ◽  
Spatial Disparity ◽  
Content Type ◽  
Rural And Urban

Purpose The purpose of this paper is to analyse the spatial disparity between rural and urban areas in Ghana using the Ghana Living Standards Survey’s (GLSS) rounds 5 and 6 data to advance the assertion that an endowed rural sector is necessary to promote agricultural development in Ghana. This analysis helps us to know the factors that contribute to the depravity of the rural sectors to inform policy towards development targeting. Design/methodology/approach A multivariate principal component analysis (PCA) and hierarchical cluster analysis were applied to data from the GLSS-5 and GLSS-6 to determine the characteristics of the rural-urban divide in Ghana. Findings The findings reveal that the rural poor also spend 60.3 per cent of their income on food, while the urban dwellers spend 49 per cent, which is an indication of food production capacity. They have low access to information technology facilities, have larger household sizes and lower levels of education. Rural areas depend a lot on firewood for cooking and use solar/dry cell energies and kerosene for lighting which have implications for conserving the environment. Practical implications Developing the rural areas to strengthen agricultural growth and productivity is a necessary condition for eliminating spatial disparities and promoting overall economic development in Ghana. Addressing rural deprivation is important for conserving the environment due to its increased use of fuelwood for cooking. Absence of alternatives to the use of fuelwood weakens the efforts to reduce deforestation. Originality/value The application of PCA to show the factors that contribute to spatial inequality in Ghana using the GLSS-5 and GLSS-6 data is unique. The study provides insights into redefining the framework for national poverty reduction efforts.

Audit quality within adverse selection markets

2016 ◽  
Vol 24 (1) ◽  
pp. 2-18 ◽  
Author(s):  
Bharat Sarath
Keyword(s):  
Private Information ◽  
Stock Price ◽  
Audit Quality ◽  
Information Economics ◽  
Economic Market ◽  
Financial Reports ◽  
Content Type ◽  
General Terms ◽  
Audit Regulation ◽  
Short Run

Purpose – Auditing may be viewed as an arrangement for reducing inefficiencies arising from the fundamental market conflict between a seller who wants as high a price as possible and a buyer who wants to pay as low a price as possible. In more general terms, sellers prefer policies that boost the stock price in the short run whereas buyers would prefer the price to peak when they are ready to sell some time in the future. By framing audited financial reports within this context, the purpose of this paper is to provide some insights regarding both audit institutions and audit regulation. Design/methodology/approach – This paper relies on conceptual arguments and a simple analytical model. Findings – The basic findings are that a unique definition of audit quality is not compatible with the economics of a market where there are conflicts across traders as well a possibility that some traders hold superior information to others. Even an identification of quality with accuracy fails in this setting of conflict. The inference is that audit quality should be approached from a multi-dimensional perspective rather than a unique measure. Research limitations/implications – While the paper points out difficulties in constructing measures of audit quality extant in the literature, it does not provide any clear empirical suggestions for better measures. Originality/value – The paper brings back into focus issues from information economics that form the bedrock for the study of audited financial statements in equity markets. While the paper is partially a survey and synthesis of some of the latest empirical findings, it describes them within the context of a rational economic market where traders may possess private information. Within such a market, the paper outlines both the conflicts and the benefits inherent to the current institutional arrangements where auditors are paid by incumbent shareholders and overseen by regulators.

Investor protection, corporate governance and private information-based trading

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chun-Teck Lye ◽  
Chee-Wooi Hooy
Keyword(s):  
Corporate Governance ◽  
Emerging Markets ◽  
Private Information ◽  
Market Competition ◽  
Investor Protection ◽  
Civil Law ◽  
Securities Market ◽  
Market Manipulation ◽  
Content Type ◽  
Securities Laws

Purpose This study aims to examine the effects of investor protection (PROT), internal and external corporate governance (CG) on private information-based trading (PIBT). Design/methodology/approach This study uses a sample of 3,438 firms from 42 countries for the period 2002–2015 to examine the effects of the broad and specific measures of PROT, internal CG and external CG (product market competition and block ownership [BOWN]) on a more accurate measure of PIBT using regression analysis. Findings The results show that PROT and BOWN are effective in reducing PIBT. However, the specific measure of PROT (strength of PROT) is not significant in emerging markets and civil law countries. The internal CG is also significant but has a positive effect on PIBT. Research limitations/implications The results suggest that PROT law matters in the efforts to prevent PIBT. Policymakers and securities market regulators, particularly in emerging markets and civil law countries, should focus more on refining existing securities laws and enacting detailed securities rules that explicitly prevent specific market manipulation and PIBT. Originality/value This study provides evidence for the importance of specific and detailed securities rules in different market and legal environments. Furthermore, this study uses the segregated private information-based speculative trading component to accurately measure the PIBT.

A novel approach to diagnose ADHD using virtual reality

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ha Min Son ◽  
Dong Gyu Lee ◽  
Yoo-Sook Joung ◽  
Ji Woo Lee ◽  
Eun Ju Seok ◽  
...  
Keyword(s):  
Virtual Reality ◽  
Diagnostic Test ◽  
Rating Scale ◽  
Necessary Condition ◽  
Natural Environments ◽  
Content Type ◽  
Adhd Diagnosis ◽  
Dsm 5 ◽  
Novel Approach ◽  
Potential Patient

Purpose The current golden standard for attention deficit hyperactivity disorder (ADHD) diagnosis is clinical diagnosis based on psychiatric interviews and psychological examinations. This is suboptimal, as clinicians are unable to view potential patients in multiple natural settings – a necessary condition for objective diagnosis. The purpose of this paper is to improve the objective diagnosis of ADHD by analyzing a quantified representation of the actions of potential patients in multiple natural environments. Design/methodology/approach The authors use both virtual reality (VR) and artificial intelligence (AI) to create an objective ADHD diagnostic test. Diagnostic and statistical manual of mental disorders, 5th Edition (DSM-5) and ADHD Rating Scale are used to create a rule-based system of quantifiable VR-observable actions. As a potential patient completes tasks within multiple VR scenes, certain actions trigger an increase in the severity measure of the corresponding ADHD symptom. The resulting severity measures are input to an AI model, which classifies the potential patient as having ADHD in the form inattention, hyperactivity-impulsivity, combined or neither. Findings The result of this study shows that VR-observed actions can be extracted as quantified data, and classification of this quantified data achieves near-perfect sensitivity and specificity with a 98.3% accuracy rate on a convolutional neural network model. Originality/value To the best of the authors’ knowledge, this is the first study to incorporate VR and AI into an objective DSM-5-based ADHD diagnostic test. By including stimulation to the visual, auditory and equilibrium senses and tracking movement and recording voice, we present a method to further the research of objective ADHD diagnosis.

Tax evasion and money laundering: a complete framework

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Deen Kemsley ◽  
Sean A. Kemsley ◽  
Frank T. Morgan
Keyword(s):  
Money Laundering ◽  
Tax Evasion ◽  
Task Force ◽  
Regulatory Agencies ◽  
Content Type ◽  
Single Process ◽  
Financial Action Task ◽  
Tax Savings ◽  
Practical Implications ◽  
Complete Framework

Purpose This paper aims to define the fundamental nexus between income tax evasion and money laundering. The G7 Financial Action Task Force (FATF) designates tax evasion as a predicate offense for money laundering. We determine whether this designation is complete from a conceptual standpoint, or whether there is a stronger connection between tax evasion and money laundering. Design/methodology/approach This paper applies the FATF definition for money laundering – as well as generally accepted definitions for tax evasion and for a standard predicate offense – to identify the necessary conditions for each crime. This paper then uses these conditions to test opposing hypotheses regarding the nexus between tax evasion and money laundering. Findings This paper demonstrates that tax evasion does not meet the conditions for a standard predicate offense, and treating it as if it were a standard predicate could be problematic in practice. Instead, it is concluded that the FATF’s predicate label for tax evasion, together with tax evasion methods and objectives, imply that all tax evasion constitutes money laundering. In a single process, tax evasion generates both criminal tax savings and launders those criminal proceeds by concealing or disguising their unlawful origin. Practical implications The FATF could strengthen its framework by explicitly defining all tax evasion as money laundering. This would enable regulatory agencies to draw upon the full combined resources dedicated to either offense. Originality/value The analysis demonstrates that tax evasion completely incorporates money laundering as currently defined by the FATF.

Factors affecting transaction costs in megaprojects: a qualitative comparative analysis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Dedong Wang ◽  
Hui Li ◽  
Yongqiang Lu
Keyword(s):  
Comparative Analysis ◽  
Transaction Costs ◽  
Qualitative Comparative Analysis ◽  
Asset Specificity ◽  
Necessary Condition ◽  
Content Type ◽  
Factors Affecting ◽  
Relational Contract ◽  
Factors Influencing ◽  
Project Costs

PurposeThe purpose of this study is to examine the factors influencing the transaction costs (TCs) in megaprojects to provide a basis for controlling project costs.Design/methodology/approachThis study selects six factors influencing the TCs in megaprojects from the perspective of TC theory and relational contract theory (RCT) through literature review. On the basis of crisp-set qualitative comparative analysis (QCA), this study tests combined factors influencing the TCs and the interaction between them.FindingsResults show that in megaprojects, TCs are affected by combination factors. The combination of asset specificity, uncertainty, transaction frequency and trust and the combination of asset specificity, reputation and trust will control TCs in certain situations. In the configuration leading to high project TCs, the combination of environmental and behavioral uncertainties is a necessary condition.Originality/valueThis paper fills up the research gap in the field of megaproject TCs, and researchers can focus on this field in the future.

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