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Private Enforcement against Collusion in Mechanism Design

  • Chen, Zhijun

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.

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File URL: http://mpra.ub.uni-muenchen.de/873/1/MPRA_paper_873.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 873.

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Date of creation: May 2006
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Handle: RePEc:pra:mprapa:873
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