This study addresses the relationship between the supply of auditing in the public sector and political competition expected in future elections. Empirical tests that use cross-sectional data from state governments reveal positive correlations between state audit budgets and measures of political competition. These results are consistent with an argument that public officials' incentives to supply auditing arise from contracting between the officials and their supporting interests.

Auditing, Auditor judgement, Auditor independence, Internal audit functions

The standard models of consumer behavior under uncertainty are the expected utility model and the mean-variance model. As with any models involving unobservables one might well ask about the empirical content of these hypotheses: what restrictions on observed behavior do these models impose? How can one test observed behavior for consistency with these models? How can one recover the underlying utility function and forecast behavior in new situations?

Normatively oriented approaches to decision making under uncertainty occupy a major portion of the literature of decision analysis. Among the proposed approaches, the Von Neumann-Morgenstern expected utility (EU) theory has been the most prominent model of rational choice despite some controversies that surround this model with respect to its descriptive ability as well as the plausibility of utility assessment in actual decision situations [6], [10]. Although most applications of the EU model have been concerned with decisions involving monetary outcomes, its scope is not limited to any particular class of consequences. The basic appeal of the model is attributable partly to its generality in this regard, and, more importantly, to the apparent reasonableness of its preferential axioms.

Corporate investment in an economy without a complete set of contingent claims markets has the characteristic of a public good in the sense that the stockholders’ consumption planscannot be separated from, but depend on, the specific investment plans of the firms. Drèze [4] has shown that a constrained Pareto optimal (CPO) allocation of investment in a stock market economy must satisfy a generalization of the Samuelson [24] condition for efficient production of public goods: the investment plan should maximize a weighted sum of the stockholders’ personal valuations of future output minus current input cost. However, except for those special cases in which CPO investment plans are unanimously supported by stockholders (see [17], [20], and [2]), the theory of the firm in incomplete markets lacks a suitable maximization criterion. Although the Drèze-Samuelson condition is a most appealing candidate, it is not unanimously preferred by stockholders, each of whom prefers that his or her own valuation of future output receives all the weight in the investment decision. Furthermore, the application of the Drèze-Samuelson condition depends on the correct revelation of stockholders’ preferences, which, in the absence of special inducements, cannot be expected from economic agents.

The question of whether security return distributions have a finite or an infinite variance has been debated for many years. The possibility that the security return-generating process actually has an infinite variance is particularly vexing since it implies that all statistical techniques and theoretical frameworks utilizing the second (or higher) moment are invalid. While this is clearly not a disaster—alternatives do exist—much of the work which has been done in the field of finance has assumed the existence of the second moment. It is, therefore, important to determine whether or not the security return distribution actually has a finite variance.

This paper shows how to test demand data for consistency with maximization, homotheticity, various forms of separability, and a rationing model without making any assumptions concerning the parametric form of underlying demand or utility functions.

This paper develops Instrumental Variables statistics for testing non-nested hypotheses when the hypotheses considered are single equations from a system of linear dynamic simultaneous equations. Asymptotic distributions of those statistics and of comparable Maximum Likelihood statistics are derived under the null hypothesis, a local non-nested alternative hypothesis, and a local “comprehensive” alternative hypothesis. The asymptotic powers of the non-nested hypothesis tests are compared with those of tests of nested hypotheses, and a numerical application is given.

This paper analyzes the earnings and employment of Chinese, Japanese, Filipino, and white men born in the United States. The Chinese and Japanese have higher levels of schooling and earnings than white men, and the Japanese work more weeks. Ceteris paribus, there are no substantive group differences in these variables or in returns from schooling. The Filipinos have a lower level of schooling, earnings, employment, and returns from schooling. It is, therefore, not appropriate to view Asian-Americans as a single disadvantaged minority group. Further, the success of the Chinese and Japanese challenges conventional wisdom regarding the consequences of racial discrimination.