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Making Collusion Hard: Asymmetric Information as a Counter-Corruption Measure

Author

Listed:
  • Juan Ortner

    (Boston University)

  • Sylvain Chassang

    (Princeton University)

Abstract

We study the problem of a principal who relies on the reports of a monitor to provide incentives to an agent. We allow for collusion, so that the agent and monitor can side-contract on what report to send. We show that the principal can benefit from creating endogenous asymmetric information between the agent and the monitor, thereby making side-contracting more difficult. Specifically, it may be optimal to randomize the incentives given to the monitor, and let the magnitude of her incentives serve as her private information vis a vis the agent.Plausible numerical computations in simple environments suggest that the potential efficiency gains from random incentives can be large. However, in general, the optimality of random incentives will depend on patterns of pre-existing asymmetric information: it is not always effective to add new sources of asymmetric information. We solve for both the Bayesian and max-min optimal policies, as well as provide an experiment-ready framework for prior-free policy evaluation. We show that even though monitors’ reports do not provide a reliable measure of actual corruption, it is possible to evaluate local policy changes using only unverified report data.

Suggested Citation

  • 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..
  • Handle: RePEc:pri:metric:064-2014
    as

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    File URL: http://detc.princeton.edu/wp-content/uploads/2016/11/wp064_2014_Ortner_Chassang_Making-Collusiion-Hard.pdf
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    References listed on IDEAS

    as
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    5. Esther Duflo & Michael Greenstone & Nicholas Ryan, 2013. "Truth-telling by Third-party Auditors and the Response of Polluting Firms: Experimental Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1499-1545.
    6. Celik, Gorkem, 2009. "Mechanism design with collusive supervision," Journal of Economic Theory, Elsevier, vol. 144(1), pages 69-95, January.
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    Citations

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    Cited by:

    1. Colin von Negenborn & Martin Pollrich, 2018. "Sweet Lemons: Mitigating Collusion in Organizations," CRC TR 224 Discussion Paper Series crctr224_019_2018, University of Bonn and University of Mannheim, Germany.
    2. repec:kap:porgrv:v:17:y:2017:i:4:d:10.1007_s11115-016-0351-5 is not listed on IDEAS

    More about this item

    Keywords

    corruption; monitoring; collusion; endogenous asymmetric information; random incentives; bargaining failure; prior-free policy evaluation; structural ex- periment design;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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