This paper investigates the settlement and litigation incentives of auditors under two legal regimes: the joint and several regime and the several only regime. The model's predictions are that if all defendants have full solvency, then auditors have lower expected liabilities under the joint and...

The principal-agent problem is fundamental to organization design. A principal must negotiate an incentive contract to motivate a more risk averse agent to undertake costly actions that cannot be observed. In rational choice theory, the problem is solved through an inefficient shifting of risk...