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Monitoring and Collusion with "Soft" Information

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  • Baliga, Sandeep

Abstract

In the standard principal-supervisor-agent model with collusion, Tirole (1986) shows that employing a supervisor is profitable for the principal if the supervisor's signal of the agent's cost of production is 'hard' (i.e., verifiable but hideable). Anecdotal evidence suggests that information is sometimes 'soft' (i.e., unverifiable). We show that, in fact, it is profitable to employ a supervisor when information is 'soft' even though the three parties can collude. Therefore, standard applications of the principal-supervisor-agent model to regulation and auditing have more scope than previously thought. Copyright 1999 by Oxford University Press.

Suggested Citation

  • Baliga, Sandeep, 1999. "Monitoring and Collusion with "Soft" Information," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(2), pages 434-440, July.
  • Handle: RePEc:oup:jleorg:v:15:y:1999:i:2:p:434-40
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    References listed on IDEAS

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    1. Noe, Thomas H, 1997. "Insider Trading and the Problem of Corporate Agency," Journal of Law, Economics, and Organization, Oxford University Press, pages 287-318.
    2. Thomas H. Noe, 1995. "Insider trading and the problem of corporate agency," FRB Atlanta Working Paper 95-2, Federal Reserve Bank of Atlanta.
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    Cited by:

    1. Fiocco, Raffaele & Gilli, Mario, 2014. "Bargaining and collusion in a regulatory relationship," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 466, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Brice Corgnet & Ismael Rodriguez Lara, 2009. "Are you a good employee or simply a good guy? Influence Costs and Contract Design," Faculty Working Papers 13/09, School of Economics and Business Administration, University of Navarra.
    3. Samuel, Andrew, 2009. "Preemptive collusion among corruptible law enforcers," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 441-450, August.
    4. Faure-Grimaud Antoine & Laffont Jean-Jacques & Martimort David, 2003. "Risk Averse Supervisors and the Efficiency of Collusion," The B.E. Journal of Theoretical Economics, De Gruyter, pages 1-32.
    5. Theilen, Bernd, 2009. "Decentralization and the Gains from Monitoring," Working Papers 2072/42863, Universitat Rovira i Virgili, Department of Economics.
    6. Urs Brandt & Gert Svendsen, 2013. "Why does bureaucratic corruption occur in the EU?," Public Choice, Springer, vol. 157(3), pages 585-599, December.
    7. Alessandro De Chiara & Luca Livio, 2012. "Truthful Reporting, Moral Hazard and Purely Soft Information," Working Papers ECARES ECARES 2012-029, ULB -- Universite Libre de Bruxelles.
    8. Alessandro De Chiara & Luca Livio, 2015. "The Threat of Corruption and the Optimal Supervisory Task," Working Papers ECARES ECARES 2015-37, ULB -- Universite Libre de Bruxelles.
    9. Theilen Bernd, 2009. "Monitoring Gains and Decentralization," The B.E. Journal of Theoretical Economics, De Gruyter, pages 1-26.
    10. De Chiara, Alessandro & Livio, Luca, 2017. "The threat of corruption and the optimal supervisory task," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 172-186.
    11. Saak, Alexander E., 2016. "Delegation of quality control in value chains:," IFPRI discussion papers 1526, International Food Policy Research Institute (IFPRI).
    12. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2007. "Bribery vs. Extortion: Allowing the Lesser of two Evils," CESifo Working Paper Series 1993, CESifo Group Munich.
    13. Corgnet, Brice & Rodriguez-Lara, Ismael, 2013. "Are you a good employee or simply a good guy? Influence costs and contract design," Journal of Economic Behavior & Organization, Elsevier, pages 259-272.
    14. Raffaele Fiocco & Mario Gilli, 2016. "Bargaining and collusion in a regulatory relationship," Journal of Economics, Springer, pages 93-116.
    15. Raffaele Fiocco & Mario Gilli, 2016. "Bargaining and collusion in a regulatory relationship," Journal of Economics, Springer, pages 93-116.
    16. Marco Battaglini, 1999. "Multiple Referrals and Multidimensional Cheap Talk," Discussion Papers 1295, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    17. Walter A Cont, 2001. "Essays on Contract Design: Delegation and Agency Problems, and Monitoring Under Collusion," Levine's Working Paper Archive 625018000000000122, David K. Levine.
    18. Yinghua He & Antonio Miralles & Jianye Yan, 2012. "Competitive Equilibrium from Equal Incomes for Two-Sided Matching," Working Papers 692, Barcelona Graduate School of Economics.
    19. Marco Battaglini, 2002. "Multiple Referrals and Multidimensional Cheap Talk," Econometrica, Econometric Society, pages 1379-1401.
    20. Mishra, Ajit & Samuel, Andrew, 2013. "Preemptive Bribery with Incomplete Information," Department of Economics Working Papers 37908, University of Bath, Department of Economics.
    21. Faure-Grimaud Antoine & Laffont Jean-Jacques & Martimort David, 2003. "Risk Averse Supervisors and the Efficiency of Collusion," The B.E. Journal of Theoretical Economics, De Gruyter, pages 1-32.

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