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Robustly Collusion-Proof Implementation

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Author Info
Yeon-Koo Che
Jinwoo Kim

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Abstract

A contract with multiple agents may be susceptible to collusion. We show that agents' collusion imposes no cost in a large class of circumstances with risk neutral agents, including both uncorrelated and correlated types. In those circumstances, any payoff the principal can attain in the absence of collusion, including the second-best level, can be attained in the presence of collusion in a way robust to many aspects of collusion behavior. The collusion-proof implementation generalizes to a setting in which only a subset of agents may collude, provided that noncollusive agents' incentives can be protected via an ex post incentive compatible and ex post individually rational mechanism. Our collusion-proof implementation also sheds light on the extent to which hierarchical delegation of contracts can optimally respond to collusion. Copyright The Econometric Society 2006.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2006.00694.x
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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 74 (2006)
Issue (Month): 4 (07)
Pages: 1063-1107
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Handle: RePEc:ecm:emetrp:v:74:y:2006:i:4:p:1063-1107

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gorkem Celik & Serdar Sayan, 2008. "On the optimality of nonmaximal fines in the presence of corruptible law enforcers," Review of Economic Design, Springer, vol. 12(3), pages 209-227, September. [Downloadable!] (restricted)
  2. Tilman Börgers & Peter Norman, 2009. "A note on budget balance under interim participation constraints: the case of independent types," Economic Theory, Springer, vol. 39(3), pages 477-489, June. [Downloadable!] (restricted)
    Other versions:
  3. Celik, Gorkem & Peters, Michael, 2008. "Equilibrium Rejection of a Mechanism," Micro Theory Working Papers gorkem_celik-2008-10, Microeconomics.ca Website, revised 06 Aug 2008. [Downloadable!]
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  5. Dequiedt, V., 2006. "Ratification and veto constraints in mechanism design," Working Papers 200606, Grenoble Applied Economics Laboratory (GAEL). [Downloadable!]
  6. Zhijun, 2008. "Collusion and Strategic Favoritism in Organizations," Working Papers 08-27, Centre for Competition Policy, University of East Anglia. [Downloadable!]
  7. Yeon-Koo Che & Jinwoo Kim, 2006. "Optimal Collusion-Proof Auctions," Discussion Papers 0506-22, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
  8. Nicolas Gruyer, 2008. "Optimal Auctions when a seller is bound to sell to collusive bidders (new version of "using lotteries ...")," Economics Working Papers 06, LEEA (air transport economics laboratory), ENAC (french national civil aviation school). [Downloadable!]
  9. repec:bep:theadv:v:8:y:2008:i:1:p:1399-1399 is not listed on IDEAS
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  10. Dequiedt, V., 2006. "Efficient collusion in optimal auctions," Working Papers 200607, Grenoble Applied Economics Laboratory (GAEL). [Downloadable!]
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