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Quality Monitoring, Collusion and Sub-contracting

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Author Info
Michael Kuhn () (University of Rostock, Department of Economics and Social Sciences, and MPIDR)
Qianhui Yan (DERS, University of York, UK)

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Abstract

We discuss the social welfare improvement under centralized and decentralized hierarchies and focus on supervisoris ability to monitor quality. Although the possibility of collusion against the principal is eliminated under decentralized hierarchy, the decentralization is dominating only if supervisory accuracy is large enough in the case of public information. Private information about the accuracy hurts the principal under both hierarchies. The optimal effort in hierarchy A is pooling one. The dominance of decentralization over centralization depend combination of accuracies of both the low and the high type supervisor.

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File URL: http://www.wiwi.uni-rostock.de/fileadmin/Institute/VWL/VWL-Institut/RePEc/pdf/wp070thuenen.pdf
File Format: application/pdf
File Function: December 2006
Download Restriction: no

Publisher Info
Paper provided by University of Rostock, Institute of Economics, Germany in its series Thuenen-Series of Applied Economic Theory with number 70.

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Length: 32 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:ros:wpaper:70

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Related research
Keywords: auditing; collusion; delegation; hierarchy; quality;

Find related papers by JEL classification:
D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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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. 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.
  2. Antoine Faure-Grimaud & Jean-Jacques Laffont & David Martimort, 2003. "Collusion, Delegation and Supervision with Soft Information," Review of Economic Studies, Blackwell Publishing, vol. 70(2), pages 253-279, 04. [Downloadable!] (restricted)
    Other versions:
  3. Jean-Jacques Laffont & David Martimort, 1998. "Collusion and Delegation," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 280-305, Summer. [Downloadable!] (restricted)
    Other versions:
  4. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March. [Downloadable!] (restricted)
  5. 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:
  6. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-56, May. [Downloadable!] (restricted)
  7. Baron, David P & Besanko, David, 1992. "Information, Control, and Organizational Structure," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 1(2), pages 237-75, Summer.
  8. 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)
  9. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June. [Downloadable!] (restricted)
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