Audit and Remediation Strategies in the Presence of Evasion Capabilities

• 成果类型: Article
• 署名作者: Wang, Shouqiang; de Vericourt, Francis; Sun, Peng
• 署名单位: University of Texas System; University of Texas Dallas; European School of Management & Technology; Duke University
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.2022.0289
• 发表日期: 2024
• 关键词: optimal-contracts; moral-hazard; insurance; ENFORCEMENT; Inspection; MODEL; time

摘要

In this paper, we explore how to uncover an adverse issue that may occur in organizations with the capability to evade detection. To that end, we formalize the problem of designing efficient auditing and remedial strategies as a dynamic mechanism design model. In this setup, a principal seeks to uncover and remedy an issue that occurs to an agent at a random point in time and that harms the principal if not addressed promptly. Only the agent observes the issue's occurrence, but the principal may uncover it by auditing the agent at a cost. The agent, however, can exert effort to reduce the audit's effectiveness in discovering the issue. We first establish that this setup reduces to the optimal stochastic control of a piecewise deterministic Markov process. The analysis of this process reveals that the principal should implement a dynamic cyclic auditing and remedial costsharing mechanism, which we characterize in closed form. Importantly, we find that the principal should randomly audit the agent unless the agent's evasion capacity is not very effective, and the agent cannot afford to self-correct the issue. In this latter case, the principal should follow predetermined audit schedules.