Managerial Collusive Behavior under Asymmetric Incentive Schemes
Guigou Jean-Daniel () and
Patrick de Lamirande ()
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Guigou Jean-Daniel: Luxembourg School of Finance, University of Luxembourg, Walferdange, Luxembourg
The B.E. Journal of Theoretical Economics, 2015, vol. 15, issue 2, 333-350
We analyze the effects of asymmetry in incentive contracts on the possibility of collusion between managers. When their compensation is based on the relative performance evaluation contracts, managers can achieve better outcomes by colluding. Using the concept of balanced temptation introduced by Friedman (1971), we find that asymmetry in incentives increases the likelihood of collusion. The result contradicts the general wisdom that asymmetries make collision harder to maintain.
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