Quality monitoring, collusion and sub-contracting

Michael Kuhn and Qianhui Yan

No 70, Thuenen-Series of Applied Economic Theory from University of Rostock, Institute of Economics

Abstract: We discuss the social welfare improvement under centralized and decentralized hierarchies and focus on supervisoris ability to monitor quality. Although the possibility of collusion against the principal is eliminated under decentralized hierarchy, the decentralization is dominating only if supervisory accuracy is large enough in the case of public information. Private information about the accuracy hurts the principal under both hierarchies. The optimal effort in hierarchy A is pooling one. The dominance of decentralization over centralization depend combination of accuracies of both the low and the high type supervisor.

Keywords: auditing; collusion; delegation; hierarchy; quality (search for similar items in EconPapers)
JEL-codes: D73 D82 I18 L22 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:roswps:70

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