Simultaneous estimation of the demand and supply of differentiated audits

Abstract

This study shows how the supply and demand for auditing services is analyzed in a simultaneous equations framework. An important aspect of the analysis is the assumption that an audit is a differentiated product that is valued for its productive attributes. A hedonic (multiattribute), nonlinear fee function defines the fees that clear the market for all audit packages traded. Analysis of marginal fees and quantities of audit attributes transacted requires simultaneous estimation of a supply and demand function for each attribute. Several approaches for estimating the hedonic fee function and achieving parameter identification in the underlying structural equations are suggested.