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Two types of collusion in a model of hierarchical agency

By Mehmet Baç, Mehmet Bac, Serkan Küçükşenel and Serkan Kucuksenel

Abstract

The standard ex post type of collusion is a supervisor-agent agreement to misrepresent the outcome of supervision. Under ex ante collusion the agent makes a side transfer to the supervisor, who, in return, stops monitoring the agent's productivity. Extending Tirole's [1986] model of hierarchy to include ex ante collusion and supervision costs, we show that the principal can ignore ex ante collusion and the supervisor's incentive constraint if supervision technology is likely to generate information at a low cost. To prevent ex ante collusion the principal increases the difference between the wages paid when the supervisor's report is empty and when it contains productivity evidence

Topics: HB Economic Theory
Publisher: Mohr Siebeck
Year: 2006
DOI identifier: 10.1628/093245606777583585
OAI identifier: oai:research.sabanciuniv.edu:259
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