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What do Lance Armstrong, Abraham Lincoln, and a group of Wall Street bankers have in common?

corporate-fraudThis is not the opening line of an incredibly unfunny joke.* Rather, this is an economist’s story of how Abraham Lincoln indirectly forced Lance Armstrong to come clean about cheating. It’s also the story of why detecting fraud by Wall Street bankers may prove more difficult.Economists study incentives. We know that if the price of rice goes up, the incentive to produce and supply rice increases. The same is true in the market for private information about fraud. If whistle-blowing behaviour is rewarded, the incentive to supply private information about dishonest or illegal behaviour also increases.

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