The aim of this thesis is the development of a political economy of large accounting and auditing firms. The importance of this lies in the rapid growth of these firms and the lack of appropriate theories. Economists have applied the theory of the firm to accounting and have approached auditing from agency and litigation costs perspectives, while sociologists have studied the culture of accounting firms and approached auditing using concepts such as ‘legitimation’ and ‘jurisdiction’. These approaches do not recognise that to do justice to the subject matter, we must study accounting firms in the broader context of accounting and its many conceptual and practical problems. These include the conceptual framework, auditor independence, the audit expectations gap, creative accounting, and fraud. To study the accounting firm within the context of accounting the thesis develops a political economy approach that emphasises conflict between investors, managers, workers, and the state. This approach proves helpful because it encompasses all accounting and auditing problems within a framework that recognises agency and links together the profits of accounting firms with their legitimation. The method adopted is the development of a theory of the profits of accounting firms and a model of factors driving auditor independence. Following Bryer, the thesis develops the theory from Marx’s Capital by combining his analyses of ‘bookkeeping’ and ‘commercial capital’. The theory highlights that as capitalist enterprises accounting firms compete with all other capitalist firms for a share of surplus value, as well as competing with other accounting firms. However, the political economy approach also highlights the essential contradiction in accounting: that measuring and disclosing profits can exacerbate the ‘labour danger’. The provocative character of accounting means that disguise of profits is part of its nature, but that this must co-exist with the contradictory need for accurate, objective measurement of profits. The model therefore suggests that the role accounting firms play in disguise is the key to understanding their behaviour. It predicts that as the level of profits and labour militancy rises, so do investors’ demand for disguise. However, because investors need disguise, auditors cannot have full independence, and the thesis concludes that this explains why auditing is within the private sector. Its general conclusion is that rather than being a principle, auditor independence is a variable driven by investors’ needs and the capitalist tactics of accounting firms. The thesis derives and tests two behavioural predictions. First, that accounting firms will exhibit the same types of behaviour as other capitalist firms. Second, the auditor does not act independently. The thesis tests these predictions with evidence of accounting firms’ mergers and profit margins (1986 to 1995), the changes introduced in the US to increase auditor independence (2001 to 2003), and the change to limited liability partnership status (2004 to 2007) in the UK. The high levels of profits disclosed by the LLP accounting firms and the close relationship between mergers and profit margins support the hypothesis that accounting firms adopt capitalist tactics. The wide-ranging debates (1995 to 2005) and changes to auditor independence rules introduced by SEC and Sarbanes-Oxley support the hypothesis that claims of auditor independence are untrue, and that the level of audit independence is a variable. The thesis proposes further development of the theory through historical research and formalising the model.

This thesis wants to contribute to the understanding of the role of collective beliefs and incomplete information in the analysis of the dynamics of inequality, growth and redistributive politics. Extensive evidence shows that the difference in the political support for redistribution appears to reflect a difference in the social perceptions regarding the determinants of individual wealth and the underlying sources of income inequality. The thesis presents a theoretical framework of beliefs and redistribution which explains this evidence through multiple politico-economic equilibria. Differently from the recent literature which obtains multiple equilibria by modeling agents characterized by psychological biases, my framework is based on standard assumptions. Multiple equilibria originate from multiple welfare maximizing levels of information for the society. Multiplewelfare-maximizing levels of information exist because increasing the informativeness of an economy produces a trade-off between a decrease in adverse selection and an increase in moral hazard. The framework provides a new micro-foundation of incomplete information as an institutional feature and answers various macroeconomic policy questions with different models.

This thesis is structured in two parts: the first part investigates topics in economics of education and the second part topics in commodity tax competition. The common thread in the first part is the English 2004 HE reform,we present both theoretical and empirical models that compare the pre-reform and post reform financing schemes, i.e. income contingent loan and mortgage loan. In the first chapter, in a world where graduates are risk averse and receive uncertain earnings, we evaluate which method gives better insurance and returns when the investment in education is risky. In the second chapter we consider the possibility that graduates do not receive an income sufficient to repay completely their loan, that is they are in default. We still develop a theoretical model, structured as a game between government and students, to see whether an ICL or a ML give students higher incentives to put more effort in their studies and avoid the risk of default. In the third chapter we present an empirical analysis, in line with the recent studies on the return to schooling. We first estimate the returns for different levels of education and then we compute the internal rate of return of the investment in higher education versus high school, under a ML and an ICL. In the second part of the thesis we provide an empirical model to develop the key idea that completion of the Single Market in the EU can be interpreted as a kind of "natural experiment" that allows us to separate the effects of tax competition from other forms of strategic interaction. We first find the conditions of cross-border shopping and the government reaction functions in three different market regimes: duty-free market before 1993, mixed market up to 1999, single market after 1999. Second, we provide an empirical test of the theoretical predictions using a panel data set of 12 EU countries over the period 1987-2004.We find that for all excise duties that we consider (beer, ethyl alcohol, still wine, sparkling wine, cigarettes, tobacco, petrol), strategic interaction between countries significantly increased after 1993, consistent with the theoretical prediction.

Rather than ponder sovereign wealth funds' (SWFs ') significance for global capital markets, this thesis takes a step back and asks the following: why do SWFs exist in such numbers across the global political economy? The SWF literature, dominated by fmancial economists and neoliberal commentators, has yet to adequately address this puzzle. This is significant given the funds embed systematically significant amounts of national wealth throughout speculative capital markets, thereby increasing their state's vulnerability to recurrent asset bubbles and crises. The thesis consequently examines the interest-based politics behind SWFs' domestic origins. It begins its analysis with the argument that SWFs are first and foremost domestic strategies of governance created to achieve specific short and medium term goals of the administrative state. This is despite their international and long-term investment orientations. In short, the funds serve to immediately stabilize state actors' governance function by reconceptualising problems of uncertainty in the quantitative and manageable terms of fmancial risk. This account of SWFs' origins thus contests that currently dominating mainstream commentary, which portrays the funds as evolutionary features of modem fmance capitalism. The domestic political interests SWFs were initially created to serve consequently remain critically unexamined. Drawing from the constructivist institutionalism literature, the thesis also seeks to demonstrate that SWFs are the institutional embodiment of a specific array of prescriptive fmancial ideas. It will be shown this framework offmancial 'knowledge' problematically constrains political actors to defer their interests to the demands of the speculative fmancial realm. In the face of recurrent crises, such constraint highlights how SWFs' immediate impact on domestic socioeconomic spheres outweighs their imagined fmancial benefits. The funds' rapid expansion since 2000 therefore poses significant implications for the nature and exercise of sovereign authority in SWF-states. These theoretical arguments are developed in Part I of the thesis, and then tested against three case studies in Part II: Norway's Government Pension Fund-Global; Alberta's Heritage Savings Trust Fund; and Ireland's National Pension Reserve Fund.

This thesis is comprised of three pieces of research on moral hazard, reputation and market structure. In particular, following an opening discussion of previous literature, I explore the dynamic interaction between moral hazard and market structure in two distinct game theoretic settings and empirically test a fundamental assumption of these models concerning consumer rationality. In the first Chapter, I survey the studies which shed light on some dimension of the relationship between asymmetric information and market structure and identify the gap in the literature that my research aims to fill. The mechanism of reputation has been primarily investigated in the setting of perfect competition; however, this setting is ill suited for uncovering the rich set of relations between asymmetric information and market structure. Only a handful of articles departed from the perfect competition framework and only few of those introduced strategic interaction among firms, a fundamental ingredient of my research interest. The models which do include strategic interaction have, however, ignored some important dynamics in the interaction of asymmetric information and market structure. Therefore in Chapter II, I develop a model in which market structure affects moral hazard while, in turn, moral hazard fuels market structure dynamics. The model is very general allowing for all kinds of strategic interaction among firms usually considered in the literature. I identify and analyse an important driving force -a survival contest - which has so far been overlooked. The main conclusion is that market concentration in and of itself reduces moral hazard and moral hazard drives the market towards concentration through the survival contest. The model is suitable to explain the puzzling market transformation of important industries such as banking, audit and health care. In Chapter III, I extend the model of Chapter 11 by introducing stochastic entry. First, I demonstrate that my results in the previous Chapter are robust to the entry process. Second, stochastic entry allows me to derive a non-degenerate steady state distribution which exhibits a very intuitive dynamics. Finally, although the complex nature of the dynamics prevents a detailed comparative static analysis of this distribution, it displays two well known empirical regularities. In particular, my model shows that the presence of moral hazard in and of itself produces shake-outs in the market from time to time and also correlated exit and entry rates. The reputation mechanisms in general and in the models of Chapter II and III in particular crucially depend on consumers' ability and willingness to develop an understanding of imperfect information on quality. In order to make reputation an effective disciplinary force, consumers must be strongly rational so that they read and understand imperfect quality indicators. In Chapter IV, this basic assumption on consumer rationality is tested empirically in discrete choice settings in the audit market. I find robust empirical evidence that if consumers are firms rather than individuals, they are strongly rational.

This thesis consists of three stand-alone papers which address different questions regarding the economics of education and pay. The Effect of Free Pre-school Education on Children’s Subsequent Academic Performance: Empirical Evidence from England (Chapter 2) This chapter address the question of whether starting formal education part-time at age three has a positive effect on children’s academic attainment when they reach age 7 and whether this depends on the sector providing the early education. Using a panel of English Local Education Authorities I initially utilise the fact that mandatory provision of free early education for 3-year olds was introduced at different times according to the deprivation of the LEA and then estimate effects separately for more and less deprived LEAs. Exploiting the time dimension of the panel dataset, I am able to control for time-invariant unobserved heterogeneity at the LEA level that may confound estimates from other British cohort studies which rely primarily on cross-sectional variation. I find that early education in public sector nursery and primary schools in the more deprived LEAs has a small positive effect on attainment in reading and writing. These findings suggest that state maintained nursery settings are more effective than private sector providers of early education, especially in more deprived LEAs. The Causal Effect of Education on Wages Revisited (Chapter 3) In this chapter I estimate the causal effect of education on wages comparing estimates that are derived using variations in schooling associated with (a) early smoking behaviour, and (b) the raising of the minimum school leaving age. Earlier research using similar methods covers a wide range and my work is motivated by the concern that what is sometimes claimed as the return to education is only the return for a specific group and this might be rather different to the average return to education in the population. Each of my instruments estimates a ‘local average treatment effect’ and I analyze the extent to which these differ and which is more appropriate for drawing conclusions about the return to education in Britain. I implement each instrument on the same data from the British Household Panel Survey, and use the over-identification to test the validity of my instruments. I also exploit the dual sources of exogenous variation in schooling to derive a further IV estimate of the return to schooling. I find that each of my IV estimates of the return to education are not significantly different to each other (approximately 12%) and are substantially higher than the Ordinary Least Squares estimate (4.6%). The Lifetime Public Premium in Earnings: The View from Europe (written with Fabien Postel-Vinay and Hélène Turon) (Chapter 4) The focus of most of the current literature on public-private pay inequality is on differences in earnings levels, however the public-private differences are equally marked in terms of earnings mobility, earnings dispersion and job loss risk. Forward-looking agents care about earnings and job mobility as well as earnings levels, thus an assessment of the existence of a “public premium” should be based on measures of the lifetime value of employment in either sector. Using data from the European Community Household Panel survey, we evaluate the difference in lifetime value of employment in the public and private sector, taking into account differences in average earnings, earnings dispersion and earnings persistence. In addition to considering the effect of observed individual characteristics, such as education and labour market experience, the estimation strategy allows for unobserved heterogeneity – for example in terms of “public service motivation” – to influence the dynamics of individuals’ employment and earnings patterns. The common format of the ECHP permits the analysis to be carried out for six different European countries – Germany, The Netherlands, France, Italy, Spain and Portugal. This is first time this modelling strategy has been applied to European data, affording an international perspective on public-private pay inequalities.

The thesis examines advertising behaviour and quality-setting behaviour at the firm level. In both cases economic theory is used to discover theoretically optimal behaviour patterns which may then be compared with the behaviour patterns exhibited by firms operating in the real world. The 'neoclassical' economic model of advertising is reviewed and a general version embodying the 'marketing mix' concept is developed. Possible means of testing for optimal advertising behaviour at the firm level are discussed. The usual method of testing for optimal advertising behaviour was shown to rely on a method which provided no information about the behaviour of firms, the usual test relies on a 'snapshot' comparison of values of the firm's discretionary variables and parameters of the demand function facing the firm. An alternative method of testing is developed the use of a stock-adjustment approach in conjunction VJith an loptimality rule' allows the construction of a test which views firms' behaviour. The test is applied to advertising data for the five major U. K. motor manufacturers during the period 1958-68. The 'quality' problem is analysed at the model or variety level. The problem of defining 'quality' is discussed, and it is suggested that if 'quality' is suitably defined there will be a useful relationship between the prices and 'qualities' of a varieties of a given product. The possible theoretical bases a price-quality relationship (and hence the 'Hedonic' technique) are analysed and shown to indicate different forms for the price-quality relationship. Appropriate methods of estimating the price-quality relationship are suggested. A model of variety demand allowing for quality differences by incorporating the residuals from the estimated price-quality relationship in the demand function is proposed. Price-quality relationships and demand functions are estimated using data for U.K. passenger cars.

This thesis investigates the role of emotion in an ethical consumption context. It responds to a call by many researchers for greater knowledge of ethical issues in the field of marketing and consumer behaviour. This interest has emerged from a growth in ethical consumption practices despite hard economic times. The limitations of the renowned intention-behaviour gap highlight that such practices cannot be wholly explained by rational processes alone. However, little attention has been afforded to the impact of non-rational factors such as emotion. By examining the concept of emotion, this study addresses previously ignored consumption phenomena identified in the experiential perspective of consumer behaviour. More specifically, this thesis concentrates on tourism as an experiential consumption encounter and as a prototypical moral platform on which ethical practices has resulted in a plethora of alternative tourism offerings. This study employs semi-structured interviews with self-defined ethical tourists using an Interpretative Phenomenological Analysis (IPA) approach. This approach helped uncover participants' subjective experiences, their meaning and how they make sense of these encounters. The findings of this thesis demonstrate the difficulties experienced by the participants in communicating emotional experiences. As a result, they tended to use the senses to describe these encounters, thereby reflecting deeply engaging and emotional consumption experiences. The pivotal role emotion plays in the participants' ethical decision making is evident as it helps reaffirm an ethical sense of self, thereby influencing future ethical behaviours. Within the consumption experience, emotion appeared as a source of hedonic value often expressed through escape experiences and its concomitant feelings of freedom, through a sense of mutual benefit and in the challenge and achievement bestowed in the experience itself. Furthermore, the relationship between positive and negative emotions is evident highlighting the transformational effect of positive emotions and the influential impact of negative emotions on ethical consumption choices. The main contributions of this study are threefold. First, it contributes to the ethical literature by demonstrating ethical consumption to be a hedonic experience. It highlights emotion's key function in motivating, influencing, evaluating and engaging the participants with their consumption experiences. In particular, it contributes to the literature on ethical tourism as it highlights that the participants' desire to engage in ethical tourism is not only motivated by self-reflection based on their ethical beliefs and values, but also because of how these experiences make them feel. These feelings stem from an intrinsic enjoyment bestowed in choosing an ethical alternative and in the experience itself. Consequently, ethical tourism is regarded as a superior quality experience and a more meaningful consumption encounter. Second, this thesis contributes to the experiential perspective of consumer behaviour, by providing a greater understanding of the concept of emotion in an ethical consumption context. It identifies the central role of emotion prior to, during, and after decision-making in an ethical context. In addition, it demonstrates the motivational and influential role positive emotion has in promoting ethical behaviour, and the reinforcing role negative emotion has in discouraging unethical behaviour. Third, the thesis highlights the significance of pride as a consumption emotion, due to its impact on both a personal and an emotional level, and its ability to influence the individual's ethical decision-making processes. Finally, as a research context, the practical implications of this thesis are evident in their ability to influence marketing strategies employed in the tourism industry and their role in inform policy-makers is illustrated. Implications for future research are also considered.

Economic theory traditionally explains choice under risk through the preferences of the individual, yet many important economic decisions are made by groups. To increase our understanding of the implications of group decisions and enrich our theories accordingly, we need empirical and experimental evidence on groups. Although economists have conducted controlled laboratory experiments on individual choice for many decades, only recently have researchers begun to use the experimental method to study group decisions under risk. This thesis contributes to the study of group decision making under risk by providing a cross-disciplinary review of the growing literature on this topic, followed by three experiments on risk-taking by groups. The first experiment investigates the role of communication and peer effects, the second experiment investigates group composition, and the final experiment focuses on information sharing in groups.

Several papers reference my contribution to the critical development of Tourism Satellite Accounting techniques in nations and regions, in order to measure the economic contribution of visitor activity in a consistent and comparable manner.