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Deterring Online Advertising Fraud Through Optimal Payment In Arrears

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Executive Summary

Online advertisers face substantial difficulty in selecting and supervising small advertising partners: Fraud can be well-hidden, and limited reputation systems reduce accountability. But partners are not paid until after their work is complete, and advertisers can extend this delay both to improve detection of improper partner practices and to punish partners who turn out to be rule-breakers. The author captures these relationships in a screening model with delayed payments and probabilistic delayed observation of agents' types. The author derives conditions in which an advertising principal can set its payment delay to deter rogue agents and to attract solely or primarily good-type agents.

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