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Decentralization and Collusion

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Author Info
Sandeep Baliga
Tomas Sjostrom

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Abstract

We consider a model where agents work in sequence on a project, share information not available to the principal, and can collude. Due to limited liability the Coase theormem does not apply. The distribution of surplus among the agents is there an important control variable for the principal, which gives us a theory of how to delegate in an organization subject to moral hazard. The optimal distribution of surplus can always be achieved by delegating in the right way (decentralization) without using "message games" (centralization).

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1210.

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Date of creation: Feb 1998
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Handle: RePEc:nwu:cmsems:1210

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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. McAfee, R Preston & McMillan, John, 1995. "Organizational Diseconomies of Scale," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 4(3), pages 399-426, Fall.
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  2. Itoh Hideshi, 1993. "Coalitions, Incentives, and Risk Sharing," Journal of Economic Theory, Elsevier, vol. 60(2), pages 410-427, August. [Downloadable!] (restricted)
  3. Mookherjee, D. & Reichelstein, S., 1996. "Budgeting and Hierarchical Control," Papers 71, Boston University - Industry Studies Programme.
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  4. 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.
  5. Melumad, Nahum & Mookherjee, Dilip & Reichelstein, Stefan, 1992. "A theory of responsibility centers," Journal of Accounting and Economics, Elsevier, vol. 15(4), pages 445-484, December. [Downloadable!] (restricted)
  6. Macho-Stadler, Ines & Perez-Castrillo, J David, 1998. "Centralized and Decentralized Contracts in a Moral Hazard Environment," Journal of Industrial Economics, Blackwell Publishing, vol. 46(4), pages 489-510, December. [Downloadable!] (restricted)
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  7. Dilip Mookherjee & Stefan Reichelstein, 2001. "Incentives and Coordination in Hierarchies," Advances in Theoretical Economics, Berkeley Electronic Press, vol. 1(advances/), pages 1009-1009. [Downloadable!] (restricted)
  8. Macho-Stadler, I. & Perez-Castrillo, J.D., 1991. "Moral Hazard with Several Agents: The Gains From Cooperation," DELTA Working Papers 91-26, DELTA (Ecole normale supérieure).
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  9. Mookherjee, Dilip, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 433-46, July. [Downloadable!] (restricted)
  10. Sandeep Baliga & Tomas Sjostrom, 1996. "Decentralization and Collusion," Harvard Institute of Economic Research Working Papers 1757, Harvard - Institute of Economic Research.
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