Collusion, Delegation and Supervision with Soft Information

42 Pages Posted: 11 Aug 2001

See all articles by Antoine Faure-Grimaud

Antoine Faure-Grimaud

London School of Economics; Centre for Economic Policy Research (CEPR)

Jean-Jacques Laffont

University of Southern California - Department of Economics (Deceased)

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 2002

Abstract

This paper derives an Equivalence Principle between organizational forms of supervisory and productive activities. We consider an organization with an agent privately informed on his productivity and a risk averse supervisor getting signals on the agent's type. In a centralized organization, the principal can communicate and contract with both the supervisor and the agent. However, these two agents can collude against the principal. In a decentralized organization, the principal only communicates and contracts with the supervisor who in turn sub-contracts with the agent. We show that the two organizations achieve the same outcome. We discuss this equivalence and provide various comparative statics results to assess the efficiency of supervisory structures.

Keywords: Supervision, soft information, collusion, delegation.

JEL Classification: D82, G14, G32, L51

Suggested Citation

Faure-Grimaud, Antoine and Laffont, Jean-Jacques and Martimort, David, Collusion, Delegation and Supervision with Soft Information (February 2002). USC CLEO Research Paper No. C02-9. Available at SSRN: https://ssrn.com/abstract=279522 or http://dx.doi.org/10.2139/ssrn.279522

Antoine Faure-Grimaud

London School of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6041 (Phone)
+44 20 7955 6887 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jean-Jacques Laffont (Contact Author)

University of Southern California - Department of Economics (Deceased)

No Address Available

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France
+33 5 6112 8614 (Phone)
+33 5 6112 8637 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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