Mechanism Design with Collusive Supervision Celik, Gorkem

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Celik, Gorkem
Appears In
Journal of Economic Theory
Economics; Analysis; Business
To link to full-text access for this article, visit this link: Byline: Gorkem Celik Keywords: Collusion; Supervision; Delegation; Mechanism design Abstract: We analyze an adverse selection environment with third party supervision. The supervisor is partly informed of the agent's type. The supervisor and the agent collude while interacting with the principal. Contracting with the agent directly and ignoring the presence of the supervisor constitutes the no-supervision benchmark. We show that delegating to the supervisor reduces the principal's payoff compared to the no-supervision benchmark under a standard condition on the distribution of the agent's types. In contrast, if the principal contracts with both the agent and the supervisor, there exists a mechanism that improves the principal's payoff over the no-supervision payoff. Author Affiliation: Department of Economics, The University of British Columbia, #997-1873 East Mall, Vancouver, BC, V6T 1Z1 Canada Article History: Received 17 October 2005; Revised 13 December 2007; Accepted 5 February 2008 Article Note: (footnote) [star] This is a very much revised version of a chapter in my dissertation submitted to Northwestern University.
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