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A difficulty with oaths: On trust, trustworthiness, and signalling

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  • Matthew Braham
  • Friedel Bolle

Abstract

In the wake of the Enron and Worldcom financial scandals that rocked Wall Street in 2002, the US government’s financial regulatory body, the Security and Exchange Commission (SEC) took the unprecedented step in June 2002 of requiring that the chief executives and chief financial officers of America’s 947 biggest companies to swear on oath that their company results and financial reports were to the best of their knowledge accurate. The one-off order was quickly followed by the passing of the Sarbanes-Oxely act, which will require many more CEOs and CFOs to certify their company reports and financial statements at regular intervals. In this paper we apply a simple signalling model to examine whether or not this type of institutional signal of trustworthiness is always efficient. We find that in the presence of signalling costs, the separating equilibrium can be socially inefficient as well as causing a general loss of trust.
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Suggested Citation

  • Matthew Braham & Friedel Bolle, 2006. "A difficulty with oaths: On trust, trustworthiness, and signalling," European Journal of Law and Economics, Springer, vol. 22(3), pages 219-232, November.
    • Handle: RePEc:kap:ejlwec:v:22:y:2006:i:3:p:219-232
    DOI: 10.1007/s10657-006-0448-3
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    2. Jacquemet, Nicolas & Joule, Robert-Vincent & Luchini, Stéphane & Shogren, Jason F., 2013. "Preference elicitation under oath," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 110-132.
    3. T.K. Ahn & Justin Esarey, 2008. "A Dynamic Model of Generalized Social Trust," Journal of Theoretical Politics, , vol. 20(2), pages 151-180, April.
    4. Jacquemet, Nicolas & Joule, Robert-Vincent & Luchini, Stéphane & Malézieux, Antoine, 2016. "Engagement et incitations : comportements économiques sous serment," L'Actualité Economique, Société Canadienne de Science Economique, vol. 92(1-2), pages 315-349, Mars-Juin.
    5. Boudewijn Bruin, 2016. "Pledging Integrity: Oaths as Forms of Business Ethics Management," Journal of Business Ethics, Springer, vol. 136(1), pages 23-42, June.
    6. Thaize Challier, M.-Christine, 2010. "Socio-political conflict, social distance, and rent extraction in historical perspective," European Journal of Political Economy, Elsevier, vol. 26(1), pages 51-67, March.

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    More about this item

    Keywords

    Asymmetric information; Institutional signals; Oaths; Risk; Trust;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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