Compliance with Endogenous Audit Probabilities

In this paper, we study the effect of endogenous audit probabilities on reporting behavior in a face-to-face compliance situation, such as at customs. In an experimental setting in which underreporting has a higher expected payoff than truthful reporting, we find an increase in compliance of about 80 percent if subjects have reason to believe that their behavior towards an officer influences their endogenous audit probability. Higher compliance is driven by considerations about how their own appearance and performance affect their audit probability, rather than by the social and psychological effects of face-to-face contact.