Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/121364
Authors: 
Pollrich, Martin
Year of Publication: 
2015
Series/Report no.: 
SFB/TR 15 Discussion Paper 509
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.
Subjects: 
auditing
limited commitment
mediation
contract theory
JEL: 
D82
D86
C72
Document Type: 
Working Paper

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