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But Who Will Monitor the Monitor?

  • David Rahman

Suppose that providing incentives for a group of individuals in a strategic context requires a monitor to detect their deviations. What about the monitor's deviations? To address this question, I propose a contract that makes the monitor responsible for monitoring, and thereby provides incentives even when the monitor's observations are not only private, but costly, too. I also characterize exactly when such a contract can provide monitors with the right incentives to perform. In doing so, I emphasize virtual enforcement and suggest its implications for the theory of repeated games. (JEL C78, D23, D82, D86)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 6 (October)
Pages: 2767-97

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:6:p:2767-97
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  14. Strausz, Roland, 2012. "Mediated contracts and mechanism design," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1280-1290.
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  30. David P. Baron & David Besanko, 1984. "Regulation, Asymmetric Information, and Auditing," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 447-470, Winter.
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