FairLedger: A Fair Blockchain Protocol for Financial Institutions

Financial institutions are currently looking into technologies for permissioned blockchains. A major effort in this direction is Hyperledger, an open source project hosted by the Linux Foundation and backed by a consortium of over a hundred companies. A key component in permissioned blockchain protocols is a byzantine fault tolerant (BFT) consensus engine that orders transactions. However, currently available BFT solutions in Hyperledger (as well as in the literature at large) are inadequate for financial settings; they are not designed to ensure fairness or to tolerate selfish behavior that arises when financial institutions strive to maximize their own profit. We present FairLedger, a permissioned blockchain BFT protocol, which is fair, designed to deal with rational behavior, and, no less important, easy to understand and implement. The secret sauce of our protocol is a new communication abstraction, called detectable all-to-all (DA2A), which allows us to detect participants (byzantine or rational) that deviate from the protocol, and punish them. We implement FairLedger in the Hyperledger open source project, using Iroha framework, one of the biggest projects therein. To evaluate FairLegder's performance, we also implement it in the PBFT framework and compare the two protocols. Our results show that in failure-free scenarios FairLedger achieves better throughput than both Iroha's implementation and PBFT in wide-area settings

Fighting VAT fraud: the Bulgarian experience

This paper draws on the experience of Bulgaria in identifying the types and modus operandi of VAT frauds with a focus on the abuse of tax credit. It analyses the elements of tax design permissive of such abuses and discusses the possible solutions in the light of the international and domestic experience and the capacity of the tax dministration. It offers a critical analysis of the Bulgarian anti-fraud device the VAT account, as well as the various alternative policy and administrative measures proposed or applied as barriers to abuse of VAT credit, including those pertaining to the domain of commercial registration, or those related to indicative “market” prices of commercial transactions. The study concludes that the possible solutions should be sought along the lines of optimizing risk management and the principle of joint liability rather than through tighter controls at entry and on the conduct of business

Fighting VAT Fraud: The Bulgarian Experience

This paper draws on the experience of Bulgaria in identifying the types and modus operandi of VAT frauds with a focus on the abuse of tax credit. It analyses the elements of tax design permissive of such abuses and discusses the possible solutions in the light of the international and domestic experience and the capacity of the tax dministration. It offers a critical analysis of the Bulgarian anti-fraud device the VAT account, as well as the various alternative policy and administrative measures proposed or applied as barriers to abuse of VAT credit, including those pertaining to the domain of commercial registration, or those related to indicative “market” prices of commercial transactions. The study concludes that the possible solutions should be sought along the lines of optimizing risk management and the principle of joint liability rather than through tighter controls at entry and on the conduct of business.VAT fraud VAT account

Contour: A Practical System for Binary Transparency

Transparency is crucial in security-critical applications that rely on authoritative information, as it provides a robust mechanism for holding these authorities accountable for their actions. A number of solutions have emerged in recent years that provide transparency in the setting of certificate issuance, and Bitcoin provides an example of how to enforce transparency in a financial setting. In this work we shift to a new setting, the distribution of software package binaries, and present a system for so-called "binary transparency." Our solution, Contour, uses proactive methods for providing transparency, privacy, and availability, even in the face of persistent man-in-the-middle attacks. We also demonstrate, via benchmarks and a test deployment for the Debian software repository, that Contour is the only system for binary transparency that satisfies the efficiency and coordination requirements that would make it possible to deploy today.Comment: International Workshop on Cryptocurrencies and Blockchain Technology (CBT), 201

Evolution of Tax Evasion

In this paper we analyze a tax evasion game with taxpayer learning by imitation. If the authority commits to a fixed auditing probability, a positive share of cheating is obtained in equilibrium. This stands in contrast to the existing literature that yields full compliance of audited taxpayer who are rational, have a lot of information and thus do not need to interact. When the authority adjusts auditing probability every period, cycling in cheating-auditing occurs. Thus, the real life phenomenon of compliance fluctuations is explained within the model rather than by exogenous parameter shifts.tax evasion; imitation; learning

Keeping Authorities "Honest or Bust" with Decentralized Witness Cosigning

The secret keys of critical network authorities - such as time, name, certificate, and software update services - represent high-value targets for hackers, criminals, and spy agencies wishing to use these keys secretly to compromise other hosts. To protect authorities and their clients proactively from undetected exploits and misuse, we introduce CoSi, a scalable witness cosigning protocol ensuring that every authoritative statement is validated and publicly logged by a diverse group of witnesses before any client will accept it. A statement S collectively signed by W witnesses assures clients that S has been seen, and not immediately found erroneous, by those W observers. Even if S is compromised in a fashion not readily detectable by the witnesses, CoSi still guarantees S's exposure to public scrutiny, forcing secrecy-minded attackers to risk that the compromise will soon be detected by one of the W witnesses. Because clients can verify collective signatures efficiently without communication, CoSi protects clients' privacy, and offers the first transparency mechanism effective against persistent man-in-the-middle attackers who control a victim's Internet access, the authority's secret key, and several witnesses' secret keys. CoSi builds on existing cryptographic multisignature methods, scaling them to support thousands of witnesses via signature aggregation over efficient communication trees. A working prototype demonstrates CoSi in the context of timestamping and logging authorities, enabling groups of over 8,000 distributed witnesses to cosign authoritative statements in under two seconds.Comment: 20 pages, 7 figure

The Dynamic Effects of Information on Political Corruption: Theory and Evidence from Puerto Rico

Does the disclosure of information about corrupt activities induce a sustained reduction in corruption? We use publicly released routine audits of municipal governments in Puerto Rico to answer this question. We first develop a political agency model where voters re-elect incumbents based on their performance while in office. We show that, because voters cannot directly observe incumbents’ actions, an incumbent whose reputation improved in the previous term is likely to engage in more rent-seeking activities in a future term. Guided by this model, we use longitudinal data on audit results to examine the long-term consequences of providing information to voters on levels of political corruption. We find that municipal corruption levels in subsequent audits are on average the same in municipalities audited preceding the previous election and those not audited then. In spite of this, mayors in municipalities audited preceding the previous election have higher re-election rates, suggesting that audits enable voters to select more competent politicians. We conclude that short-term information dissemination policies do not necessarily align politicians’ long-term actions with voter preferences as politicians exploit their reputational gains by extracting more rents from office.corruption; information; political agency; dynamic incentives

Monotone missing data and repeated controls of fallible authors

Chapters 2 and 3 focus on repeated audit controls with categorical variables. Chapter 4 and 5 introduce and analyse a very general multivariate regression model for (monotone) missing data. In the final Chapter 6 the previous chapters are combined into a more realistic model for repeated audit controls with a mixture of categorical and continuous variables

The Public Management of Risk: Separating Ex Ante and Ex Post Monitors

When a firm undertakes risky activities, the conflict between social and private incentives to implement safety care requires public intervention which can take the form of both monetary incentives but also ex ante or ex post monitoring, i.e., before or after an accident occurs. We delineate the optimal scope of monitoring depending on whether public monitors are benevolent or corruptible. We show that separating the ex ante and the ex post monitors increases the likelihood of ex post investigation, helps prevent capture and improves welfare.Risk Regulation, Monitoring, Capture, Integration, Separation