Two Corruptible Monitors

Do more monitors help to deter bribes? I compare optimal solutions for moral hazard problems in which a principal pays two corruptible monitors to provide hard evidence about an agent's action. If the agent can bribe one, but not both, of the monitors to conceal evidence, then the principal might prefer to have each monitor receive a different piece of evidence, because then the agent can never conceal all of it. But if the agent can bribe one or both of the monitors, then the principal always prefers to have one monitor receive all the evidence. Why? When each monitor receives a different piece of evidence,  the principal must pay both monitors in order to deter bribes to conceal either piece. But when one monitor receives both pieces of evidence,  the same payment that deters bribes to conceal one piece, also deters bribes to conceal the other piece, so the principal pays less overall. These results suggest that coalition formation frictions play an important role in incentive design problems with more than one monitor.

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