Tournaments are well known to be vulnerable to collusion as shown by the impossibility theorem in Ishiguro (2004), which asserts that efficient effort levels are impossible to be implemented through a collusion-proof contract. However, we argue that this impossibility is a product of simple mechanisms that prevail in collusion-proof mechanism design. In this paper, we explore more sophisticated mechanisms with discrimination and asymmetric information to prevent collusion, outlining the principle of “divide and conquer”. As a result, we establish a possibility theorem of implementing efficient effort levels, and thus break down the impossibility theorem in Ishiguro (2004).
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Paper provided by EconWPA in its series Labor and Demography with number
0504012.
Find related papers by JEL classification: D20 - Microeconomics - - Production and Organizations - - - General J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
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