Quality monitoring, collusion and sub-contracting
AbstractWe 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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Bibliographic InfoPaper provided by University of Rostock, Institute of Economics in its series Thuenen-Series of Applied Economic Theory with number 70.
Date of creation: 2006
Date of revision:
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; Mechanism Design
- 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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