But Who Will Monitor the Monitor?
David Rahman*
Date: 2009-05-15 10:00 am – 10:30 am
Last modified: 2009-04-15
Abstract
Consider a group of individuals in a strategic environment with moral hazard and adverse selection, and suppose that providing incentives for a given outcome requires a monitor to detect deviations. What about the monitors deviations? This paper analyzes mediated contracts to answer such a question, and asserts that the monitor's deviations are eectively irrelevant. Hence, nobody needs to monitor the monitor. The paper also characterizes exactly when such contracts make can provide monitors with the right incentives to perform. In doing so, several characterizations of virtual implementation are derived.