Abstract
I study optimal contracting where the principal can verify the agent's private information via auditing but cannot contractually commit to audit frequency. Optimal contracting requires sophisticated communication: the agent reports his information to a mediator, who randomly selects a contract. Mediation allows for fine‐tuning the information flow, because the principal observes the selected contract but not the agent's report. Simply offering a menu of contracts is, in general, not optimal. I characterize optimal mediated contracts, determine conditions for when auditing is profitable, and analyze contractual distortions. Mediated contracts can be implemented via negotiated rulemaking procedures, and potentially via sequential communication.
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