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Mechanism design with collusive supervision

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  • Celik, Gorkem

Abstract

We analyze an adverse selection environment with third party supervision. The supervisor is partly informed of the agent's type. The supervisor and the agent collude while interacting with the principal. Contracting with the agent directly and ignoring the presence of the supervisor constitutes the no-supervision benchmark. We show that delegating to the supervisor reduces the principal's payoff compared to the no-supervision benchmark under a standard condition on the distribution of the agent's types. In contrast, if the principal contracts with both the agent and the supervisor, there exists a mechanism that improves the principal's payoff over the no-supervision payoff.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 1 (January)
Pages: 69-95

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Handle: RePEc:eee:jetheo:v:144:y:2009:i:1:p:69-95

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Collusion Supervision Delegation Mechanism design;

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References

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Citations

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Cited by:
  1. Yeon-Koo Che & Jinwoo Kim, 2007. "Optimal Collusion-Proof Auctions," Discussion Papers, Columbia University, Department of Economics 0708-05, Columbia University, Department of Economics.
  2. Leonardo Felli, 1996. "Preventing Collusion Through Discretion," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /1996/303, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Mylovanov, Tymofiy & Tröger, Thomas, 2013. "Mechanism Design by an Informed Principal: The Quasi-Linear Private-Values Case," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 437, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Bernd Theilen, 2012. "Decentralization of contracts with interim side-contracting," Theory and Decision, Springer, Springer, vol. 73(4), pages 561-590, October.
  5. Fahad Khalil & Jacques Lawarrée & Troy J. Scott, 2013. "Private Monitoring, Collusion and the Timing of Information," CESifo Working Paper Series 4497, CESifo Group Munich.
  6. Dilip Mookherjee, 2006. "Decentralization, Hierarchies, and Incentives: A Mechanism Design Perspective," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 367-390, June.
  7. Angelucci, Charles & Russo, Antonio, 2012. "Moral Hazard in Hierarchies and Soft Information," TSE Working Papers, Toulouse School of Economics (TSE) 12-343, Toulouse School of Economics (TSE).
  8. Mishra, Ajit & Samuel, Andrew, 2013. "Preemptive Bribery with Incomplete Information," Department of Economics Working Papers, University of Bath, Department of Economics 37908, University of Bath, Department of Economics.
  9. Sandeep Baliga & Tomas Sjostrom, 2005. "Contracting with Third Parties," Levine's Bibliography 784828000000000408, UCLA Department of Economics.
  10. Celik, Gorkem, 2004. "Counter Marginalization of Information Rents under Collusion," Microeconomics.ca working papers, Vancouver School of Economics celik-04-01-23-02-48-07, Vancouver School of Economics, revised 27 Jan 2008.
  11. D'Hulster, Katia, 2011. "Cross border banking supervision : incentive conflicts in supervisory information sharing between home and host supervisors," Policy Research Working Paper Series 5871, The World Bank.
  12. Fahad Khalil & Doyoung Kim & Jacques Lawarrée, 2013. "Contracts Offered by Bureaucrats," CESifo Working Paper Series 4511, CESifo Group Munich.

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