Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting
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24
Our article integrates the manager’s care in the literature on auditor’s liability. With unobservable efforts, we face a double moral hazard setting. It is well-known that efficient liability rules without punitive damages do not exist under these circumstances. However, we show that the problem can be solved through strict liability, contingent auditing fees, and fair insurance contracts. Neither punitive damages nor deductibles above the damages are required.