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This paper aims to understand how risk aversion affects monitor incentives and internal control failures.

August 5, 2026Open Access

The Riskless Corner: Why Prudence Cannot Pay for Vigilance

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This paper aims to understand how risk aversion affects monitor incentives and internal control failures.
Developed a model for monitor incentives considering risk aversion and blame variance.
Analyzed the impact of adjudicator precision on monitor behavior and internal control.
Examined the relationship between forensic quality, blame, and vigilant behavior in monitoring.
A risk-averse monitor's incentives are affected by fixed blame when abandoning their post.
Forensic quality influences blame, causing shifts in monitor vigilance based on coverage levels.
Pricing whole wealth lotteries maintains the inequality while altering risk perception, leading monitors to abandon their posts.

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Models risk-averse monitor incentives impacting internal-control failures, suggesting implications for forensic quality.

Mikio Hanaeda (2026) studied this question.

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