Optimal Enforcement Policies Under the Threat of Collusion and Extortion

Ajit Mishra

No 184, Dundee Discussion Papers in Economics from Economic Studies, University of Dundee

Abstract: We consider a model of enforcement where the Principal relies on the Supervisor for information on the Agents. We argue that optimal policies must consider both collusion and extortion possibilities. Both collusion and extortion can be prevented by mechanisms resembling appeals process. However, if appeals involve a net cost for the agents, then optimal enforcement policy may involve over-enforcement or under-enforcement.

Keywords: Banking; Financial Stability; Bank Fragility; Options; Estonia (search for similar items in EconPapers)
Pages: 23 pages
Date: 2005-11
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Citations: View citations in EconPapers (1)

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