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Private Enforcement against Collusion in Mechanism Design

Author

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  • Chen, Zhijun

Abstract

This paper brings a new point of view into the theory of collusion-proof mechanism design, which highlights the principle of divide and conquer. We relax the restriction of publicly enforced grand contract in the framework of Laffont-Martimort-Itoh, which allows us to incorporate the approach of private enforcement into the theory. In a setting of moral hazard with mutually observable actions, we develop a multi-stage mechanism integrated with secret reporting and private transferring and show that the first-best allocation can be implememted in spite of collusion, which implies that preventing collusion entails no cost under new approach.

Suggested Citation

  • Chen, Zhijun, 2006. "Private Enforcement against Collusion in Mechanism Design," MPRA Paper 873, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:873
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    File URL: https://mpra.ub.uni-muenchen.de/873/1/MPRA_paper_873.pdf
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    Cited by:

    1. Chen, Zhijun, 2006. "Fighting Collusion in Tournaments," MPRA Paper 872, University Library of Munich, Germany.

    More about this item

    Keywords

    secret report; private enforcement; collusion-proof mechanism design;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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