Two types of collusion in a model of hierarchical agency

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2006-06-01

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Bac, Mehmet
Küçükşenel, Serkan

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The standard ex post type of collusion is a supervisor-agent agreement to misrepresent the outcome of supervision. Under ex ante collusion the agent makes a side transfer to the supervisor, who, in return, stops monitoring the agent's productivity. Extending TIROLE'S [1986] model of hierarchy to include ex ante collusion and supervision costs, we show that the principal can ignore ex ante collusion and the supervisor's incentive constraint if supervision technology is likely to generate information at a low cost. To prevent ex ante collusion the principal increases the difference between the wages paid when the supervisor's report is empty and when it contains productivity evidence.

Subject Keywords

Economics and Econometrics

URI

https://hdl.handle.net/11511/37417

Journal

JOURNAL OF INSTITUTIONAL AND THEORETICAL ECONOMICS-ZEITSCHRIFT FUR DIE GESAMTE STAATSWISSENSCHAFT

DOI

https://doi.org/10.1628/093245606777583585

Collections

Department of Economics, Article

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Citation Formats

M. Bac and S. Küçükşenel, “Two types of collusion in a model of hierarchical agency,” JOURNAL OF INSTITUTIONAL AND THEORETICAL ECONOMICS-ZEITSCHRIFT FUR DIE GESAMTE STAATSWISSENSCHAFT, pp. 262–276, 2006, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/37417.