Presenter: Günter Strobl, University of Vienna

Title: The Economics of Scientific Misconduct: When Imperfect Deterrence Enhances Welfare

Abstract: We develop a principal-agent model in which an effort-averse agent must be incentivized to conduct a research project. The agent privately observes whether her project succeeds or fails and, in the case of failure, can commit fraud to make it appear successful. The principal observes the project outcome and a signal of potential misconduct but cannot directly observe the agent's ability, effort cost, or effort level. We show that a contract that tolerates fraud can be optimal, as it enhances the informativeness of observed outcomes about the agent's effort level, thereby reducing the agent's information rent. Moreover, we identify conditions where harsher punishment for fraud increases fraudulent behavior.

Host: Matthias Lassak