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On optimality of illegal collusion in contracts

Author

Listed:
  • Ariane Lambert-Mogiliansky

    (CERAS-ENPC - Ecole Nationale des Ponts et ChaussÊes, 28 rue des Saints PÉres, F-75343 Paris, France)

Abstract

Illegal collusion is a widespread phenomenon all around the world. Yet, models of hierarchical agency relationships tend not to predict collusion. This paper demonstrates that a natural requirement of interim efficiency suffices for collusion to appear in equilibrium in a simple standard setting. The optimal extent of collusion depends on the efficacy of the legal system. When the transaction costs associated with illegal deals are small enough, inducing some illegal collusion between the agent and his supervisor increases the principal's payoff.

Suggested Citation

  • Ariane Lambert-Mogiliansky, 1998. "On optimality of illegal collusion in contracts," Review of Economic Design, Springer;Society for Economic Design, vol. 3(4), pages 303-328.
    • Handle: RePEc:spr:reecde:v:3:y:1998:i:4:p:303-328
    Note: Received: 9 December 1996 / Accepted: 11 April 1998
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    Citations

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    Cited by:

    1. Che, Xiaogang & Huang, Yangguang & Zhang, Le, 2021. "Supervisory efficiency and collusion in a multiple-agent hierarchy," Games and Economic Behavior, Elsevier, vol. 130(C), pages 425-442.
    2. Nobuo Yoshida, 2000. "The Optimal Combination of Corruption Reforms: Is a Comprehensive Approach a Good Idea?," Econometric Society World Congress 2000 Contributed Papers 1335, Econometric Society.
    3. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2010. "Bribery versus extortion: allowing the lesser of two evils," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 179-198, March.
    4. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2007. "Bribery vs. Extortion: Allowing the Lesser of two Evils," CESifo Working Paper Series 1993, CESifo.
    5. Lambert-Mogiliansky, Ariane, 2002. "Why firms pay occasional bribes: the connection economy," European Journal of Political Economy, Elsevier, vol. 18(1), pages 47-60, March.

    More about this item

    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
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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