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Mediated audits

By Martin Pollrich

Abstract

I study the optimal audit mechanism when the principal cannot commit to an audit strategy. Invoking a relevation principle, the agent reports her type to a mediator whi assigns contracts and recommends the principla whether to audit. For each reported type the mediator randomizes over a base-contract and the audit contract, accompanied by a recommendation to audit. For large penalties the optimal mechanism uses strictly more contracts than types and cannot be implemented via offering a menu of contracts. The analysis provides a proper benchmark for studying auditing under limited commitment and sheds new light on the usefulness of mediation in contracting and on the design of optimal mechanisms

Topics: D82, D86, C72, ddc:330, auditing, limited commitment, mediation, contract theory
Publisher: M\ufcnchen: Sonderforschungsbereich/Transregio 15 Governance and the Efficiency of Economic Systems
Year: 2015
OAI identifier: oai:econstor.eu:10419/121364
Provided by: EconStor

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