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On monitoring timing in hierarchies

Walter Cont
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Walter Cont: Fundación de Investigaciones Económicas Latinoamericanas- Universidad Nacional de La Plata

Económica, 2003, vol. IL, issue 1-2, 21-54

Abstract: In a principal-monitor-agent model we show that the principal’s choice of the timing to monitor the agent presents a trade-off. On the one hand, a signal from an ex ante monitor (supervisor) provides flexibility in contracting (since both output and wages can be contracted on this signal). On the other hand, a signal from an ex post monitor (auditor) can be used to punish the agent. Auditing is optimal when (i) strong punishment schemes can be implemented and enforced by courts or (ii) when punishment instruments are not expected to be strong and the monitor’s signal is noisy. Supervising is optimal otherwise.

JEL-codes: D82 L23 (search for similar items in EconPapers)
Date: 2003
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