Incentive Contracts Under Imperfect Auditing
National Taipei University - Department of Economics
affiliation not provided to SSRN
Manchester School, Vol. 76, No. 2, pp. 131-159, March 2008
In this paper we analyze the optimal incentive contracts under imperfect auditing. Both principal's commitment and no commitment to auditing cases are investigated. In the commitment case, the Baron-Besanko-type (RAND Journal of Economics, Vol. 15 (1984), pp. 447-470) contract would fail under imperfect auditing. In the no-commitment case, the Baron-Myerson (Econometrica, Vol. 50 (1982), pp. 911-930) and the Khalil-type (RAND Journal of Economics, Vol. 28 (1997), pp. 629-640) contracts could survive under specific misjudging probabilities. In addition, there exists a separate equilibrium with the agent's full compliance and the principal's sure ex post auditing.
Number of Pages in PDF File: 29
JEL Classification: J33, M49, D82Accepted Paper Series
Date posted: February 7, 2008
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