In 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.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Length: 45 pages Date of creation: 09 Apr 2003 Date of revision: Handle: RePEc:wpa:wuwpga:0304002
Note: Type of Document - pdf; prepared on IBM PC - PC-TEX; to print on HP/A4paper; pages: 45 ; figures: included Contact details of provider: Web page: http://129.3.20.41
For technical questions regarding this item, or to correct its listing, contact: (EconWPA).
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 L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
This paper has been announced in the following NEP Reports:
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.:
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:
Sandeep Baliga & Tomas Sjostrom, 1998.
"Decentralization and Collusion,"
Discussion Papers
1210, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
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.)