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Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship

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  • Strausz, R.G.

    (Tilburg University, School of Economics and Management)

Abstract

We describe a principal–supervisor–agent relationship in which agent and supervisor may collude. To prevent collusion, the principal may contract on a noisy signal which is correlated with the occurrence of collusion. When the signal is informative enough, the principal uses it and no collusion occurs in equilibrium. These contracts, however, are ex post inefficient and are only optimal if the principal can commit not to renegotiate. With renegotiation it is never optimal for the principal to prevent collusion and, at the same time, condition contracts on the signal. In fact, when the signal is informative enough collusion occurs in equilibrium.
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Suggested Citation

  • Strausz, R.G., 1995. "Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship," Other publications TiSEM e10db550-4347-4e64-bf32-1, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:e10db550-4347-4e64-bf32-1c79b30febc0
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    1. Jean-Jacques Laffont & Jean Tirole, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1089-1127.
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    3. 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.
    4. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
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    Cited by:

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    5. 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 Limited, vol. 70(3), pages 305-332, November.
    6. Marchegiani, Lucia & Reggiani, Tommaso & Rizzolli, Matteo, 2016. "Loss averse agents and lenient supervisors in performance appraisal," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 183-197.
    7. 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.
    8. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2010. "Bribery versus extortion: allowing the lesser of two evils," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 179-198, March.
    9. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2007. "Bribery vs. Extortion: Allowing the Lesser of two Evils," CESifo Working Paper Series 1993, CESifo.
    10. Jellal, Mohamed, 2014. "Social structure bureaucracy and corruptionA," MPRA Paper 57177, University Library of Munich, Germany.
    11. Osipian, Ararat, 2008. "The World is Flat: Modeling Educators’ Misconduct with Cellular Automata," MPRA Paper 7592, University Library of Munich, Germany.
    12. Alexander Henke & Fahad Khalil & Jacques Lawarree, 2022. "Honest agents in a corrupt equilibrium," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 762-783, August.
    13. Li Chen & Shiqing Yao & Kaijie Zhu, 2020. "Responsible Sourcing Under Supplier-Auditor Collusion," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1234-1250, November.
    14. Jellal, Mohamed, 2009. "Darke Side of Social Capital Social Preferences and Corruption," MPRA Paper 17179, University Library of Munich, Germany.
    15. S. Bolatto & L. Lambertini, 2017. "Collusive Vertical Relations," Working Papers wp1103, Dipartimento Scienze Economiche, Universita' di Bologna.
    16. Eskeland, Gunnar S. & Thiele, Henrik, 1999. "Corruption under moral hazard," Policy Research Working Paper Series 2204, The World Bank.
    17. R. Strausz, 1995. "Collusion and Renegotiation in a Principal-Supervisor-Agent- Relationship (REVISION)," Game Theory and Information 9510002, University Library of Munich, Germany, revised 03 Apr 1996.
    18. Lindenthal, Sabine, 2000. "Der Einfluss der Organisationsstruktur auf die Leistungskontrolle," Quint-Essenzen 62, University of Trier, Institute for Labour Law and Industrial Relations in the European Community (IAAEG).
    19. Jellal, Mohamed, 2012. "An anti corruption mechansim," MPRA Paper 38647, University Library of Munich, Germany.
    20. Lambsdorff, Johann, 2001. "How corruption in government affects public welfare: A review of theory," University of Göttingen Working Papers in Economics 9, University of Goettingen, Department of Economics.
    21. Dam, Kaniṣka & Roy Chowdhury, Prabal, 2021. "Monitoring and incentives under multiple-bank lending: The role of collusive threats," Journal of Economic Theory, Elsevier, vol. 197(C).

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