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  4. October 2012
  5. But Who Will Monitor the Monitor?

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

But Who Will Monitor the Monitor?

  • David Rahman
American Economic Review
vol. 102, no. 6, October 2012
(pp. 2767–97)
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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)

Citation

Rahman, David. 2012. "But Who Will Monitor the Monitor?" American Economic Review, 102 (6): 2767–97. DOI: 10.1257/aer.102.6.2767

Additional Materials

JEL Classification

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