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American Economic Review: Vol. 102 No. 6 (October 2012)

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But Who Will Monitor the Monitor?

Article Citation

Rahman, David. 2012. "But Who Will Monitor the Monitor?" American Economic Review, 102(6): 2767-97.

DOI: 10.1257/aer.102.6.2767

Abstract

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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Authors

Rahman, David (U MN)

JEL Classifications

C78: Bargaining Theory; Matching Theory
D23: Organizational Behavior; Transaction Costs; Property Rights
D82: Asymmetric and Private Information; Mechanism Design
D86: Economics of Contract: Theory


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