On optimality of illegal collusion in contracts

Ariane Lambert-Mogiliansky ()

Review of Economic Design, 1998, vol. 3, issue 4, pages 303-328

Abstract: Illegal collusion is a widespread phenomenon all around the world. Yet, models of hierarchical agency relationships tend not to predict collusion. This paper demonstrates that a natural requirement of interim efficiency suffices for collusion to appear in equilibrium in a simple standard setting. The optimal extent of collusion depends on the efficacy of the legal system. When the transaction costs associated with illegal deals are small enough, inducing some illegal collusion between the agent and his supervisor increases the principal's payoff.

JEL-codes: D73 D82 L22 (search for similar items in EconPapers)
Date: 1998-09-16
Note: Received: 9 December 1996 / Accepted: 11 April 1998
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