Private Enforcement against Collusion in Mechanism Design

Zhijun Chen

MPRA Paper from University Library of Munich, Germany

Abstract: This paper brings a new point of view into the theory of collusion-proof mechanism design, which highlights the principle of divide and conquer. We relax the restriction of publicly enforced grand contract in the framework of Laffont-Martimort-Itoh, which allows us to incorporate the approach of private enforcement into the theory. In a setting of moral hazard with mutually observable actions, we develop a multi-stage mechanism integrated with secret reporting and private transferring and show that the first-best allocation can be implememted in spite of collusion, which implies that preventing collusion entails no cost under new approach.

Keywords: secret report; private enforcement; collusion-proof mechanism design (search for similar items in EconPapers)
JEL-codes: C72 D82 (search for similar items in EconPapers)
Date: 2006-05
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:873

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