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Sweet Lemons: Mitigating Collusion in Organizations

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  • Colin von Negenborn

    ()

  • Martin Pollrich

    ()

Abstract

This paper shows that the possibility of collusion between an agent and a supervisor imposes no restrictions on the set of implementable social choice functions (SCF) and associated payoff vectors. Any SCF and any payoff profile that are implementable if the supervisor’s information was public is also implementable when this information is private and collusion is possible. To implement a given SCF we propose a one-sided mechanism that endogenously creates private information for the supervisor vis-à -vis the agent, and conditions both players’ payoffs on this endogenous information. We show that in such a mechanism all collusive side-bargaining fails, similar to the trade failure in Akerlof’s (1970) car market and in models of bilateral trade.

Suggested Citation

  • Colin von Negenborn & Martin Pollrich, 2018. "Sweet Lemons: Mitigating Collusion in Organizations," CRC TR 224 Discussion Paper Series crctr224_2018_019, University of Bonn and University of Mannheim, Germany.
  • Handle: RePEc:bon:boncrc:crctr224_2018_019
    as

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    File URL: https://www.crctr224.de/en/research-output/discussion-papers/discussion-papers#DP19
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    References listed on IDEAS

    as
    1. Kofman, Fred & Lawarree, Jacques, 1996. "A prisoner's dilemma model of collusion deterrence," Journal of Public Economics, Elsevier, vol. 59(1), pages 117-136, January.
    2. Alfredo Burlando & Alberto Motta, 2015. "Collusion and the Organization of the Firm," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 54-84, August.
    3. Celik, Gorkem, 2009. "Mechanism design with collusive supervision," Journal of Economic Theory, Elsevier, vol. 144(1), pages 69-95, January.
    4. David Rahman & Ichiro Obara, 2010. "Mediated Partnerships," Econometrica, Econometric Society, vol. 78(1), pages 285-308, January.
    5. Juan Ortner & Sylvain Chassang, 2014. "Making Collusion Hard: Asymmetric Information as a Counter-Corruption Measure," Working Papers 064-2014, Princeton University, Department of Economics, Econometric Research Program..
    6. David Rahman, 2012. "But Who Will Monitor the Monitor?," American Economic Review, American Economic Association, vol. 102(6), pages 2767-2797, October.
    7. Cremer, Jacques, 1996. "Manipulations by Coalitions Under Asymmetric Information: The Case of Groves Mechanisms," Games and Economic Behavior, Elsevier, vol. 13(1), pages 39-73, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Mechanism Design; Collusion; Asymmetric Information; Correlation;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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