but who will monitor the monitor?
Consider a group of individuals whose behavior is subject to moral hazard, and suppose that providing them with incentives requires a monitor to detect deviations. What about the monitor's deviations? I study mediated contracts and find that the monitor's deviations are effectively irrelevant. Hence, nobody needs to monitor the monitor. I also characterize exactly when such contracts can provide the right incentives for everyone. In doing so, several new characterizations of virtual implementation are derived.
monitoring mediated contracts virtual implementation