Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship
The authors 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. Copyright 1997 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 99 (1997)
Issue (Month): 4 (December)
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References listed on IDEAS
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- Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
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"The Politics of Government Decision-Making: A Theory of Regulatory Capture,"
506, Massachusetts Institute of Technology (MIT), Department of Economics.
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- Jean-Jacques LAFFONT & Jean TIROLE, 1990. "The Politics of Government Decision-Making : a Theory of Regulatory Capture," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9004, Université de Lausanne, Faculté des HEC, DEEP.
- 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.
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