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Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship

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  • Strausz, R.G.

    (Tilburg University, Center For Economic Research)

Abstract

We describe a principal–supervisor–agent relationship in which agent and supervisor may collude. To prevent collusion, the principal may contract on a noisy signal which is correlated with the occurrence of collusion. When the signal is informative enough, the principal uses it and no collusion occurs in equilibrium. These contracts, however, are ex post inefficient and are only optimal if the principal can commit not to renegotiate. With renegotiation it is never optimal for the principal to prevent collusion and, at the same time, condition contracts on the signal. In fact, when the signal is informative enough collusion occurs in equilibrium.
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Suggested Citation

  • Strausz, R.G., 1995. "Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship," Discussion Paper 1995-48, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:e10db550-4347-4e64-bf32-1c79b30febc0
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    1. Jean-Jacques Laffont & Jean Tirole, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1089-1127.
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    Cited by:

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    15. Jellal, Mohamed, 2014. "Social structure bureaucracy and corruptionA," MPRA Paper 57177, University Library of Munich, Germany.
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    17. S. Bolatto & L. Lambertini, 2017. "Collusive Vertical Relations," Working Papers wp1103, Dipartimento Scienze Economiche, Universita' di Bologna.
    18. Eskeland, Gunnar S. & Thiele, Henrik, 1999. "Corruption under moral hazard," Policy Research Working Paper Series 2204, The World Bank.
    19. R. Strausz, 1995. "Collusion and Renegotiation in a Principal-Supervisor-Agent- Relationship (REVISION)," Game Theory and Information 9510002, University Library of Munich, Germany, revised 03 Apr 1996.
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