IDEAS home Printed from
   My bibliography  Save this paper

A Dynamic Model of Collusion


  • Acemoglu, Daron


A monitor is hired to control the agent. Despite the lack of side-contracting opportunities it is shown that the agent and the monitor can collude. The conditions for such implicit collusion are that the monitor should expect future rents from a continued relationship and the agent should have the authority to influence these rents and a credible threat to do so. The paper shows that the credibility of the agent's threat depends on how the principal will interpret a disagreement between the agent and the monitor, which in turn depends on whether the principal expects collusion to take place. The dynamic model of collusion we offer fits the accounts of lawyers, sociologists and auditors on the nature of collusion and it enables us to ask and answer some new questions. First, the extent of collusion will depend on the monopoly power (rents) of the monitors. Second, in contrast to a static model with explicit side-contracts, using the threat of lawsuits combined with a flat fee for the monitor rather than bonuses may be the optimal method of controlling the monitor. Third, the behaviour of the current monitor will depend on the expected behaviour of other monitors and thus a multiplicity of equilibria is possible. Fourth, the number of tasks that the monitor has may influence the possibility of collusion. Finally, our model can be used to jointly determine the allocation of authority and the reliability of information flows within the organization.

Suggested Citation

  • Acemoglu, Daron, 1994. "A Dynamic Model of Collusion," CEPR Discussion Papers 1027, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1027

    Download full text from publisher

    File URL:
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Ann Vanstraelen, 2000. "Impact of renewable long-term audit mandates on audit quality," European Accounting Review, Taylor & Francis Journals, vol. 9(3), pages 419-442.
    2. Daron Acemoglu & Miles Gietzmann, 1998. "Auditor independence, incomplete contracts and the role of legal liability," European Accounting Review, Taylor & Francis Journals, vol. 6(3), pages 355-375.

    More about this item


    Career Concerns; Implicit Collusion; Monitoring Collusion; Threat of Lawsuits;

    JEL classification:

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


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1027. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.