On optimality of illegal collusion in contracts |
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Authors: | Ariane Lambert-Mogiliansky |
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Institution: | (1) CERAS-ENPC – Ecole Nationale des Ponts et Chaussées, 28 rue des Saints Pères, F-75343 Paris, France (e-mail: Ariane.LAMBERT@paris.enpc.fr) , FR;(2) THEMA, Paris X, France , FR |
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Abstract: | Illegal collusion is a widespread phenomenon all around the world. Yet, models of hierarchical agency relationships tend
not to predict collusion. This paper demonstrates that a natural requirement of interim efficiency suffices for collusion
to appear in equilibrium in a simple standard setting. The optimal extent of collusion depends on the efficacy of the legal
system. When the transaction costs associated with illegal deals are small enough, inducing some illegal collusion between
the agent and his supervisor increases the principal's payoff.
Received: 9 December 1996 / Accepted: 11 April 1998 |
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Keywords: | JEL classification: D73 D82 L22 : Collusion commitment renegotiation transaction costs |
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