Collusion and Renegotiation in a Principal–Supervisor–Agent Relationship

Roland Strausz

Scandinavian Journal of Economics, 1997, vol. 99, issue 4, 497-518

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.

Date: 1997
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Citations: View citations in EconPapers (16)

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https://doi.org/10.1111/1467-9442.00078

Related works:
Working Paper: Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship (1995)
Working Paper: Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship (1995)
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