In this study, we experimentally investigate how managers' budget reporting behavior is influenced by two important features of the budgeting system: the measurement basis used in budget preparation (i.e., whether managers make budget reports in financial or nonfinancial measures) and managers' slack benefits in budget execution (i.e., whether managers benefit from budgetary slack directly or through an intermediate activity). While prior research suggests that moral self-regulation helps promote honest behavior, we predict that a financial measurement basis undermines moral self-regulation by strengthening the manager's desire to advance self-interest and that the absence of direct slack benefits undermines moral self-regulation by making misreporting more justifiable. We also predict that the effects of these two budgetary features on honesty are non-additive, due to the manager's diminishing marginal net utility from misreporting. Experimental results are consistent with our predictions. The implications of our findings for management accounting theory and practice are discussed.

We report the results of 18 experimental markets designed to investigate the effect of the information environment on informed traders' performance. In our experiment, traders bid to acquire costly, imperfect information on asset value and then take part in a double-auction asset market. We posit that the nature of the information environment, distinguished by the cost of information, affects traders’ ability to prosper. Using the inverse relationship between cost of information and number of informed traders, we study whether traders can properly determine the value of the information under enriched and impoverished environments. In our experiment, the enriched environment includes a significant number of informed traders, whereas the impoverished environment has few informed traders. We find that traders in an impoverished environment pay too much for information and, once informed, they do not transact enough to recover the cost of information acquisition. Traders who compete for information that confers a larger information advantage are worse off than those who compete in an environment in which information is more widely available.