Collusion and the Organisation of the Firm
University of Oregon - Department of Economics
University of New South Wales
January 1, 2014
This paper shows that the threat of collusion between a productive agent and the auditor in charge of monitoring production can influence a number of organizational dimensions of the firm, including outsourcing decisions and the allocation of production costs. We find that the optimal organizational response to internal collusion lets the agent choose between working outside the firm (no monitoring and full claims over production costs) or within the firm (monitoring but no claims over costs). In equilibrium, there are no rents due to collusion. The results are robust to a number of extensions.
Number of Pages in PDF File: 34
Keywords: Collusion, Supervision, Mechanism design, Theory of the Firm, Outsourcing
JEL Classification: D82, C72, D23
Date posted: October 18, 2012 ; Last revised: February 24, 2014
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