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Monitoring and Collusion with "Soft" Information

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  • Baliga, Sandeep

Abstract

In the standard principal-supervisor-agent model with collusion, Tirole (1986) shows that employing a supervisor is profitable for the principal if the supervisor's signal of the agent's cost of production is 'hard' (i.e., verifiable but hideable). Anecdotal evidence suggests that information is sometimes 'soft' (i.e., unverifiable). We show that, in fact, it is profitable to employ a supervisor when information is 'soft' even though the three parties can collude. Therefore, standard applications of the principal-supervisor-agent model to regulation and auditing have more scope than previously thought. Copyright 1999 by Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Journal of Law, Economics and Organization.

Volume (Year): 15 (1999)
Issue (Month): 2 (July)
Pages: 434-40

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Handle: RePEc:oup:jleorg:v:15:y:1999:i:2:p:434-40

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Cited by:
  1. Raffaele Fiocco & Mario Gilli, 2011. "Bargaining and Collusion in a Regulatory Model," SFB 649 Discussion Papers SFB649DP2011-047, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Theilen, Bernd, 2009. "Decentralization and the Gains from Monitoring," Working Papers 2072/42863, Universitat Rovira i Virgili, Department of Economics.
  3. Mishra, Ajit & Samuel, Andrew, 2013. "Preemptive Bribery with Incomplete Information," Department of Economics Working Papers 37908, University of Bath, Department of Economics.
  4. Walter A Cont, 2001. "Essays on Contract Design: Delegation and Agency Problems, and Monitoring Under Collusion," Levine's Working Paper Archive 625018000000000122, David K. Levine.
  5. Marco Battaglini, 2000. "Multiple Referrals and Multidimensional Cheap Talk," Econometric Society World Congress 2000 Contributed Papers 1557, Econometric Society.
  6. Brice Corgnet & Ismael Rodriguez-Lara, 2012. "Are you a Good Employee or Simply a Good Guy? Infl?uence Costs and Contract Design," Working Papers 12-02, Chapman University, Economic Science Institute.
  7. Urs Brandt & Gert Svendsen, 2013. "Why does bureaucratic corruption occur in the EU?," Public Choice, Springer, vol. 157(3), pages 585-599, December.
  8. Fahad Khalil & Jacques Lawarree & Sungho Yun, 2009. "Bribery vs. extortion: allowing the lesser of two evils," Working Papers UWEC-2007-11-P, University of Washington, Department of Economics, revised Jul 2009.
  9. Angelucci, Charles & Russo, Antonio, 2012. "Moral Hazard in Hierarchies and Soft Information," TSE Working Papers 12-343, Toulouse School of Economics (TSE).
  10. Samuel, Andrew, 2009. "Preemptive collusion among corruptible law enforcers," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 441-450, August.
  11. Faure-Grimaud Antoine & Laffont Jean-Jacques & Martimort David, 2003. "Risk Averse Supervisors and the Efficiency of Collusion," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-32, January.

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