Mediated Audits

Martin Pollrich

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

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.

Keywords: Auditing; limited commitment; mediation; contract theory (search for similar items in EconPapers)
JEL-codes: C72 D82 D86 (search for similar items in EconPapers)
Date: 2015-03-05
New Economics Papers: this item is included in nep-acc and nep-mic
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Related works:
Journal Article: Mediated audits (2017)
Working Paper: Mediated Audits
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:809

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