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Managerial Collusive Behavior under Asymmetric Incentive Schemes

Author

Listed:
  • Guigou Jean-Daniel

    (Luxembourg School of Finance, University of Luxembourg, Walferdange, Luxembourg)

  • de Lamirande Patrick

    (Cape Breton University, 250 Grand Lake Road, Sydney, NS B1R 2H8, Canada)

Abstract

We analyze the effects of asymmetry in incentive contracts on the possibility of collusion between managers. When their compensation is based on the relative performance evaluation contracts, managers can achieve better outcomes by colluding. Using the concept of balanced temptation introduced by Friedman (1971), we find that asymmetry in incentives increases the likelihood of collusion. The result contradicts the general wisdom that asymmetries make collision harder to maintain.

Suggested Citation

  • Guigou Jean-Daniel & de Lamirande Patrick, 2015. "Managerial Collusive Behavior under Asymmetric Incentive Schemes," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 15(2), pages 333-350, July.
    • Handle: RePEc:bpj:bejtec:v:15:y:2015:i:2:p:333-350:n:12
    DOI: 10.1515/bejte-2014-0079
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    References listed on IDEAS

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