Travail de recherche/Working paper
| Résumé : | In this paper we investigate the task the supervisor should be optimally charged with in an agency modelin which the principal faces corruption concerns. We highlight a fundamental tradeoff between monitoringthe agent’s effort choice and auditing it ex-post. Monitoring proves more effective in tackling corruptionsince the supervisor sends the report before the profit realization. By taking advantage of the supervisor’suncertainty about the state of nature, the principal can design a compensation scheme which prevents allforms of corruption at a lower cost. Conversely auditing reduces the cost of supervision as the principalhires the supervisor only if the profit does not convey enough information about the compensation due tothe agent. We show that the ultimate choice between monitoring and auditing depends on the supervisor’sability to falsify information and the cost of performing an inspection. |
