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Collusion, Shading, and Optimal Organization Design in a Three-tier Agency Model with a Continuum of Types

Author

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  • Yutaka Suzuki

    (Faculty of Economics, Hosei University)

Abstract

We apply the First-Order Approach and Monotone Comparative Statics to the continuous-type, three-tier agency model with hidden information and collusion a la Tirole (1986,1992), characterize the nature of equilibrium contract implemented under the possibility of collusion between supervisor and agent, and obtain a general comparison result on the two-tier vs. three-tier organization structures. We then introduce a behavioral idea, "shading" (Hart and Moore (2008)). By combining the two ideas, collusion and shading, we obtain a new result on the choice of Collusion-proof vs. Equilibrium Collusion regimes, and give a micro foundation to ex-post haggling costs, addressed by Transaction Cost Economics.

Suggested Citation

  • Yutaka Suzuki, 2021. "Collusion, Shading, and Optimal Organization Design in a Three-tier Agency Model with a Continuum of Types," Annals of Economics and Finance, Society for AEF, vol. 22(2), pages 317-365, November.
    • Handle: RePEc:cuf:journl:y:2021:v:22:i:2:suzuki
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    References listed on IDEAS

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    More about this item

    Keywords

    Collusion; Supervision; Mechanism Design; First Order (Mirrlees) Approach; Behavioral Economics; Shading;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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