Corporate social responsibility and the assessment by auditors of the risk of material misstatement

This paper investigates whether, and how, firms’ corporate social responsibility (CSR) performance influences the auditor's assessment of the risk of material misstatement, whether due to fraud or error, at the financial statement level by analysing their pricing decision (i.e., audit fees). Using a panel data set of 12,330 firms from 28 countries over the period 2003–2012 and different measures of CSR performance, we find a U‐shaped relationship between firms’ CSR performance and audit fees. This result suggests that there is an optimal level of CSR performance that minimizes the auditor's assessment of the risk of material misstatement, which in turn lowers the need for greater auditor effort; that is why auditors charge firms significantly less when their CSR performance is at the optimal level. Finally, we also show that the optimal level of CSR performance varies with the degree of environmental dynamism, ownership concentration and leverage.     

Quality and Location Choices under Price Regulation

In a model of spatial competition, we analyze the equilibrium outcomes in markets where the product price is exogenous. Using an extended version of the Hotelling model, we assume that firms choose their locations and the quality of the product they supply. We derive the optimal price set by a welfarist regulator. If the regulator can commit to a price prior to the choice of locations, the optimal (second-best) price causes overinvestment in quality and an insufficient degree of horizontal differentiation (compared with the first-best solution) if the transportation cost of consumers is sufficiently high. Under partial commitment, where the regulator is not able to commit prior to location choices, the optimal price induces first-best quality, but horizontal differentiation is inefficiently high.     

Quantification of preferences in markets

In this paper we quantify agent preferences in a market. In our framework every agent has a utility level associated with each transaction, and we assume that the probability of a feasible market transaction increases with an increase in total utility. It is surprising to observe that this simple behavioral principle induces a usually unique probability measure that can be constructed by a fast numerical algorithm. This unusual combination of a rigorous model and a fast numerical algorithm makes it possible to construct a well-defined set of preferences that implies a set of observed commodity prices.     

Estimation of sample selection models with spatial dependence

We consider the estimation of a sample selection model that exhibits spatial autoregressive errors (SAE). Our methodology is motivated by a two‐step strategy where in the first step we estimate a spatial probit model and in the second step (outcome equation) we include an estimated inverse Mills ratio (IMR) as a regressor to control for selection bias. Since the appropriate IMR under SAE depends on a parameter from the second step, both steps are jointly estimated employing the generalized method of moments. We explore the finite sample properties of the estimator using simulations and provide an empirical illustration. Copyright © 2010 John Wiley & Sons, Ltd.     

Technology spillover effects and economic integration: evidence from integrating EU countries

The article uses time series for the period 1981–2008 to estimate the impact of foreign technology spillover effects on Greece, Ireland, Portugal and Spain, representing the integrating European Union (EU) countries. I restrict technology diffusion to EU-12 countries and compare the results to unrestricted technology diffusion from a sample of 32 OECD countries. Accounting for nonstationarity and co-integration, the dynamic OLS estimator is used to estimate the impact of foreign R&D stock on labour productivity, taking into account patent-, trade- and FDI-related technology diffusion channels. I find empirical evidence for trade-related foreign technology spillover effects for Greece and Ireland if technology diffusion is unrestricted. Restricting technology diffusion to EU-12 countries, there are significant foreign technology spillover effects from European integration for Portugal (patent related) and Spain (trade and FDI related). Moreover, the domestic R&D stock and education are significant drivers for labour productivity in integrating EU countries. The empirical results are robust for different regression specifications and sources of technology diffusion.     

Property Rights Assignment: Conflict and the Implementability of Rules

The paper studies the assignment of property rights. By assignment I mean a social mechanism that transfers a valuable resource from an “unowned” state to an “owned” state (for example, a first-possession rule). I argue that any assignment mechanism faces an implementation constraint with one exception, namely the assignment by conflict. I characterize this constraint and show that under some conditions population growth facilitates rule-based assignments because appropriation by conflict becomes more costly. In other cases, however, this effect is reversed. The model may give some insights regarding the emergence and the disappearance of the open-field system in medieval Europe which, paradoxically, both have been attributed to population growth. This paper is dedicated to Horst Hegmann. For helpful and insightful comments in discussions and on the paper I thank Roderick Hay, Horst Hegmann, Christopher Kingston, Guy Kirsch, Krishna Ladha, Marc Law, Anton Miglo, Douglass North, and John Nye. I also thank the editor Amihai Glazer and two anonymous referees for their comments. The usual disclaimer applies.