The authors study the design of supervisory functions in an organization with one principal and two agents. Each agent can perform supervision activities regarding the other agent. They characterize the way the principal must structure incentive payments to avoid any collusive activity between agents. In particular, it is shown that better mutual information between agents may hurt the principal. The other main result is the possibility that it may be better to give up one supervisory function or to have a third party be the supervisor if possible. Finally, the authors show that such a dual supervisory structure raises the possibility that letting collusion happen may be the best policy. Copyright 1997 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 99 (1997) Issue (Month): 4 (December) Pages: 519-40 Download reference. The following formats are available: HTML
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