Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/320254 
Year of Publication: 
2024
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 19 [Issue:] 2 [Year:] 2024 [Pages:] 823-863
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
A principal incentivizes an agent to maintain compliance and to truthfully announce any breaches of compliance. Compliance is imperfectly controlled by the agent's private effort choices, is partially persistent, and is verifiable by the principal only through costly inspections. We show that in principal-optimal equilibria, the principal enforces maximum compliance using deterministic inspections. Periodic inspection cycles are suspended during periods of self-reported noncompliance, during which the agent is fined. We show how commitment to random inspections would benefit the principal, and discuss possible ways for the principal to overcome her commitment problem.
Subjects: 
costly inspections
dynamic enforcement
persistence
Relational contracts
JEL: 
C73
D83
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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