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Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship

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Author Info
Strausz, R. (Tilburg University, Center for Economic Research)

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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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Publisher Info
Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 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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Related research
Keywords: Collusion;

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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.:
  1. 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. [Downloadable!] (restricted)
    Other versions:
  2. 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. [Downloadable!] (restricted)
  3. 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.
  4. Tirole, Jean, 1991. "Collusion and the Theory of Organizations," IDEI Working Papers 9, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-56, May. [Downloadable!] (restricted)
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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. 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. [Downloadable!]
  2. R. Strausz, 1995. "Collusion and Renegotiation in a Principal-Supervisor-Agent- Relationship (REVISION)," Game Theory and Information 9510002, EconWPA, revised 03 Apr 1996. [Downloadable!]
  3. Yolande Hiriart & David Martimort & Jérôme Pouyet, 2009. "The public management of risk: Separating ex ante and ex post monitors," PSE Working Papers 2009-20, PSE (Ecole normale supérieure). [Downloadable!]
  4. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2007. "Bribery vs. Extortion: Allowing the Lesser of two Evils," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  5. Jellal, Mohamed, 2009. "Dark Side of Social Capital Social Preferences and Corruption," MPRA Paper 17179, University Library of Munich, Germany. [Downloadable!]
  6. Osipian, Ararat, 2008. "The World is Flat: Modeling Educators’ Misconduct with Cellular Automata," MPRA Paper 7592, University Library of Munich, Germany. [Downloadable!]
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