Contracts under Wage Compression: A Case of Beneficial Collusion

Dongsoo Shin ()

Southern Economic Journal, 2007, vol. 74, issue 1, 143-157

Abstract: This paper considers a principal‐agent model with adverse selection and limited wage discrimination. Under wage compression, an agent may have an incentive to free ride on other agents by manipulating his private information. When collusion among the agents is not possible, the principal distorts the output schedule to reduce information rent associated with the free‐riding opportunity. Under collusion, however, the principal can reduce the information rent by inducing side contracts among the agents, thus partly removing the distortion in the output schedule. We show that side contracts among the agents take place in equilibrium and that the prospect of collusion is beneficial.

Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1002/j.2325-8012.2007.tb00831.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:74:y:2007:i:1:p:143-157

Access Statistics for this article

More articles in Southern Economic Journal from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().