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Collusion as an Informed Principal Problem

  • Lucia Quesada

    (University of Wisconsin Madison)

In this paper we address the question of collusion in mechanisms under asymmetric information. We develop a methodology to analyze collusion as an informed principal problem. First, if collusion occurs after the agents accept or reject the principal's offer; the dominant-strategy implementation of the optimal contract without collusion is collusion proof. Second, we look at a different timing, assuming that the agents' decision to accept or reject the principal's offer is taken after collusion, so agents can collude on their participation decisions. We also assume that the collusion offer includes a punishment strategy, to be used whenever the other agent rejects the side contract. We establish the conditions that have to be satisfied for a contract to be collusion proof and we show that the optimal contract without collusion is no longer collusion proof. The optimal collusion proof contract is asymmetric, both in transfers and in quantities.

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File URL: http://econwpa.repec.org/eps/game/papers/0504/0504002.pdf
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Paper provided by EconWPA in its series Game Theory and Information with number 0504002.

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Length: 40 pages
Date of creation: 06 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpga:0504002
Note: Type of Document - pdf; pages: 40
Contact details of provider: Web page: http://econwpa.repec.org

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