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Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship

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  • Strausz, R.

    (Tilburg University, Center for Economic Research)

Abstract

This paper describes a principal-agent relationship with a supervisor who has information about the agent. The agent and the supervisor have the possibility to collude and misinform the principal. From the literature we know that there exists an optimal contract which excludes collusion in equilibrium. The optimal contract, however, is ex post inefficient and creates scope for renegotiation. If renegotiation is allowed then under some parameter constellations the optimal contract is a contract which necessarily induces collusion. The paper thus shows that the principal's behavior toward ex post inefficiencies may determine whether collusion occurs in equilibrium.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1995-48.

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Date of creation: 1995
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Handle: RePEc:dgr:kubcen:199548

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Web page: http://center.uvt.nl

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References

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  1. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
  2. Laffont, Jean-Jacques & Tirole, Jean, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1089-127, November.
  3. Tirole, Jean, 1991. "Collusion and the Theory of Organizations," IDEI Working Papers 9, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-56, May.
  5. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
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Citations

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Cited by:
  1. Lambsdorff, Johann, 2001. "How corruption in government affects public welfare: A review of theory," Center for European, Governance and Economic Development Research Discussion Papers 9, University of Goettingen, Department of Economics.
  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. Lindenthal, Sabine, 2000. "Der Einfluss der Organisationsstruktur auf die Leistungskontrolle," Quint-Essenzen 62, Institute for Labour Law and Industrial Relations in the European Community (IAAEG), University of Trier.
  4. Lucia Marchegiani & Tommaso Reggiani & Matteo Rizzolli, 2013. "Severity vs. Leniency Bias in Performance Appraisal: Experimental evidence," BEMPS - Bozen Economics & Management Paper Series BEMPS01, School of Economics and Management at the Free University of Bozen.
  5. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2007. "Bribery vs. Extortion: Allowing the Lesser of two Evils," CESifo Working Paper Series 1993, CESifo Group Munich.
  6. Jellal, Mohamed, 2009. "Darke Side of Social Capital Social Preferences and Corruption," MPRA Paper 17179, University Library of Munich, Germany.
  7. Yolande Hiriart & David Martimort & Jérôme Pouyet, 2009. "The public management of risk: Separating ex ante and ex post monitors," Working Papers halshs-00566863, HAL.
  8. R. Strausz, 1995. "Collusion and Renegotiation in a Principal-Supervisor-Agent- Relationship (REVISION)," Game Theory and Information 9510002, EconWPA, revised 03 Apr 1996.
  9. Osipian, Ararat, 2008. "The World is Flat: Modeling Educators’ Misconduct with Cellular Automata," MPRA Paper 7592, University Library of Munich, Germany.
  10. Jellal, Mohamed, 2012. "An anti corruption mechansim," MPRA Paper 38647, University Library of Munich, Germany.
  11. Minggao Shen & Jikun Huang & Linxiu Zhang & Scott Rozelle, 2010. "Financial reform and transition in China: a study of the evolution of banks in rural China," Agricultural Finance Review, Emerald Group Publishing, vol. 70(3), pages 305-332, November.

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