Decentralization and Collusion

Sandeep Baliga () and Tomas Sjostrom

No 1210, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: We consider a model where agents work in sequence on a project, share information not available to the principal, and can collude. Due to limited liability the Coase theormem does not apply. The distribution of surplus among the agents is there an important control variable for the principal, which gives us a theory of how to delegate in an organization subject to moral hazard. The optimal distribution of surplus can always be achieved by delegating in the right way (decentralization) without using "message games" (centralization).

Date: 1998-02
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Related works:
Working Paper: Decentralization and Collusion (1996)
Journal Article: Decentralization and Collusion (1998)
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