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Collusion and Delegation

Author

Listed:
  • Laffont, J.J.
  • Martimort, D.

Abstract

We discuss the internal organization of the firm, arguing that the comparison between a centralized and a decentralized hierarchical organization should be cast in terms of the agency costs associated with the different side-contracting games that agents play in these organizations. In our model, with no limits on communication between the agents and the principal (complete contracting), collusion is not an issue in a centralized organization. Centralization always dominates (at least weakly) delegation. With limits on communication (incomplete contracting), collusion may have some bite under centralization. Limits on communication introduce an anonymity condition on the contract, creating a conflict between participation and coalition incentive constraints under centralization. By shifting the bargaining power in the side-contracting stage, delegation is nonanonymous and asymmetric by design. This conflict is then avoided or diminished depending on the exact timing of the delegation game.
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Suggested Citation

  • Laffont, J.J. & Martimort, D., 1995. "Collusion and Delegation," Papers 95.397, Toulouse - GREMAQ.
  • Handle: RePEc:fth:gremaq:95.397
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    References listed on IDEAS

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    1. Sinn, Hans-Werner, 1994. "How Much Europe? Subsidiarity, Centralization and Fiscal Competition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(1), pages 85-107, February.
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    Cited by:

    1. Shastitko. Andrey & Komkova, Anastasia Andreevna & Kurdin, Alexander & Shastitko, Anastasia, 2016. "Competition Policy and Incentives for Innovation," Working Papers 1447, Russian Presidential Academy of National Economy and Public Administration.
    2. Caillaud, B. & Jullien, B. & Picard, P., 1996. "Hierarchical organization and incentives," European Economic Review, Elsevier, vol. 40(3-5), pages 687-695, April.
    3. Axel Gautier & Dimitri Paolini, 2007. "Delegation and Information Revelation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(4), pages 574-597, December.
    4. Dirk Sliwka, 2001. "On the Costs and Benefits of Delegation in Organizations," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 568-568, December.
    5. Ortiz, Danica Aisa P. & Abrigo, Michael R.M. & Tam, Zhandra C., 2017. "Decentralization and Health in the Philippines: A Systematic Review of Empirical Evidences," Discussion Papers DP 2017-58, Philippine Institute for Development Studies.
    6. Fiocco, Raffaele & Scarpa, Carlo, 2014. "The regulation of markets with interdependent demands," Information Economics and Policy, Elsevier, pages 1-12.
    7. Michela Cella, 2011. "Monitoring subcontracting in a suppliers' hierarchy," Oxford Economic Papers, Oxford University Press, vol. 63(3), pages 523-548, July.
    8. Theilen, Bernd, 2009. "Decentralization and the Gains from Monitoring," Working Papers 2072/42863, Universitat Rovira i Virgili, Department of Economics.
    9. Dalen, D.M. & von der Fehr, N.-H.M. & Moen, E.R., 1998. "Regulation and Wage Bargaining," Memorandum 13/1998, Oslo University, Department of Economics.
    10. Lise Rochaix, 1997. "Asymétries d'information et incertitude en santé : les apports de la théorie des contrats," Économie et Prévision, Programme National Persée, vol. 129(3), pages 11-24.
    11. Yang, Fiona X. & Zhang, Rachel Q. & Zhu, Kaijie, 2017. "Should purchasing activities be outsourced along with production?," European Journal of Operational Research, Elsevier, vol. 257(2), pages 468-482.
    12. Theilen, Bernd, 1965-, 2011. "Decentralization of contracts with interim sidecontracting," Working Papers 2072/169684, Universitat Rovira i Virgili, Department of Economics.

    More about this item

    Keywords

    ECONOMETRICS; CONTRACTS; DECENTRALISATION;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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