Should the Timing of Inspections be Predictable?
Theoretical Economics
2026-05-29 v6 Computer Science and Game Theory
Abstract
A principal hires an agent to work on a long-term project that culminates in a breakthrough or a breakdown. At each time, the agent privately chooses to work or shirk. Working increases the arrival rate of breakthroughs and decreases the arrival rate of breakdowns. To motivate the agent to work, the principal conducts costly inspections. She fires the agent if shirking is detected. We characterize the principal's optimal inspection policy. Predictable inspections are optimal if work primarily generates breakthroughs. Random inspections are optimal if work primarily prevents breakdowns. Crucially, the agent's actions affect the survival rate of the project, which determines his risk attitude over the timing of planned inspections.
Cite
@article{arxiv.2304.01385,
title = {Should the Timing of Inspections be Predictable?},
author = {Ian Ball and Jan Knoepfle},
journal= {arXiv preprint arXiv:2304.01385},
year = {2026}
}