Modeling collusion as an informed principal problem
AbstractIn this paper we address the question of collusion in mechanisms under asymmetric information by assuming that one of the colluding parties offers a side contract to the other one. We develop a methodology to analyze collusion as an informed principal problem. We show that if collusion occurs after the agents accept or reject the principal’s offer, the dominant-strategy implementation of the optimal contract without collusion is collusion proof. In the second part of the paper, we look at a different timing, assuming that the agents’ decision to accept or reject the principal’s offer is taken after collusion, so the agents share their private information before accepting the principal’s offer. On the other hand, we assume that the collusion offer includes a punishment strategy, to be used whenever the other agent rejects the side contract. We establish the conditions that have to be satisfied for a contract to be collusion proof and we show that the optimal contract without collusion is no longer collusion proof. The optimal collusion proof contract is asymmetric, both in transfers and in quantities.
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Bibliographic InfoPaper provided by EconWPA in its series Game Theory and Information with number 0304002.
Length: 45 pages
Date of creation: 09 Apr 2003
Date of revision:
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Collusion Informed principal Mechanism design;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
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