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On optimality of illegal collusion in contracts

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  • Ariane Lambert-Mogiliansky

    () (CERAS-ENPC - Ecole Nationale des Ponts et ChaussÊes, 28 rue des Saints PÉres, F-75343 Paris, France)

Abstract

Illegal collusion is a widespread phenomenon all around the world. Yet, models of hierarchical agency relationships tend not to predict collusion. This paper demonstrates that a natural requirement of interim efficiency suffices for collusion to appear in equilibrium in a simple standard setting. The optimal extent of collusion depends on the efficacy of the legal system. When the transaction costs associated with illegal deals are small enough, inducing some illegal collusion between the agent and his supervisor increases the principal's payoff.

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Bibliographic Info

Article provided by Springer in its journal Review of Economic Design.

Volume (Year): 3 (1998)
Issue (Month): 4 ()
Pages: 303-328

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Handle: RePEc:spr:reecde:v:3:y:1998:i:4:p:303-328

Note: Received: 9 December 1996 / Accepted: 11 April 1998
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Cited by:
  1. 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.
  2. Nobuo Yoshida, 2000. "The Optimal Combination of Corruption Reforms: Is a Comprehensive Approach a Good Idea?," Econometric Society World Congress 2000 Contributed Papers 1335, Econometric Society.
  3. Lambert-Mogiliansky, Ariane, 2002. "Why firms pay occasional bribes: the connection economy," European Journal of Political Economy, Elsevier, vol. 18(1), pages 47-60, March.

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