Transaction Costs of Collusion and Organizational Design

35 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 2, 2001

Abstract

This paper discusses the origins of the transaction costs in side-contracting. In Tirole (1986)'s model of collusion with a risk averse supervisor, the optimal collusion-proof contract trades-off coalitional incentives against an insurance motive. We characterize the corresponding agency cost and allocative distortions. Identifying this contractual outcome with Tirole (1992)'s model of collusion with exogenous transaction costs provides foundations for those transaction costs. Transaction costs of collusion are stake-dependent, linked to the economic environment and function of the colluding agents' degrees of risk preferences. We provide several applications of this theory of transaction costs for organizational design (vertical integration, design of supervisory structures and side-contracting under uncertainty).

Keywords: Supervision, collusion, stake-dependent transaction costs

JEL Classification: D82, G14, L51

Suggested Citation

Faure-Grimaud, Antoine and Laffont, Jean-Jacques and Martimort, David, Transaction Costs of Collusion and Organizational Design (February 2, 2001). USC CLEO Research Paper No. C01-17. Available at SSRN: https://ssrn.com/abstract=279523 or http://dx.doi.org/10.2139/ssrn.279523

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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