Collusion as an Informed Principal Problem

Lucía Quesada

Game Theory and Information from University Library of Munich, Germany

Abstract: In this paper we address the question of collusion in mechanisms under asymmetric information. We develop a methodology to analyze collusion as an informed principal problem. First, if collusion occurs after the agents accept or reject the principal's offer; the dominant-strategy implementation of the optimal contract without collusion is collusion proof. Second, we look at a different timing, assuming that the agents' decision to accept or reject the principal's offer is taken after collusion, so agents can collude on their participation decisions. We also assume that the collusion offer includes a punishment strategy, to be used whenever the other agent rejects the side contract. We establish the conditions that have to be satisfied for a contract to be collusion proof and we show that the optimal contract without collusion is no longer collusion proof. The optimal collusion proof contract is asymmetric, both in transfers and in quantities.

Keywords: Collusion; Informed Principal; Mechanism Design (search for similar items in EconPapers)
JEL-codes: C72 D23 D82 L23 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2005-04-06
New Economics Papers: this item is included in nep-mic
Note: Type of Document - pdf; pages: 40
References: View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpga:0504002

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