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On optimality of illegal collusion in contracts


  • Ariane Lambert-Mogiliansky

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


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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    References listed on IDEAS

    1. Osborne Martin J., 1993. "Candidate Positioning and Entry in a Political Competition," Games and Economic Behavior, Elsevier, vol. 5(1), pages 133-151, January.
    2. Roger B. Myerson & Robert J. Weber, 1988. "A Theory of Voting Equilibria," Discussion Papers 782, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Chwe Michael Suk-Young, 1994. "Farsighted Coalitional Stability," Journal of Economic Theory, Elsevier, vol. 63(2), pages 299-325, August.
    4. Timothy Besley & Stephen Coate, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 85-114.
    5. Myerson, Roger B., 2000. "Large Poisson Games," Journal of Economic Theory, Elsevier, vol. 94(1), pages 7-45, September.
    6. repec:cup:apsrev:v:87:y:1993:i:01:p:102-114_09 is not listed on IDEAS
    7. Martin J. Osborne & Al Slivinski, 1996. "A Model of Political Competition with Citizen-Candidates," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 65-96.
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    Cited by:

    1. 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.
    2. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2007. "Bribery vs. Extortion: Allowing the Lesser of two Evils," CESifo Working Paper Series 1993, CESifo Group Munich.
    3. 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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