The alternating offers bargaining game with two pies and incomplete information has a bargaining sequential equilibrium where the "strong" type of the informed player restricts his offer to one pie, leaving it to the other player to make an offer on the second pie. An offer on both pies comes only from the "weak" type of informed player. Hence, an issueby-issue negotiation agenda may arise from signaling considerations. Journal of Economic Literature Classification Number: C78.

This article studies the relation between the structure of monitoring hierarchies and corruption, that is, the expected number of bribed members. The model allows for internal corruption, a form of collusion eliminating accountability (monitoring) in the hierarchy. It is shown that the number of subordinates in a corruption-minimizing hierarchy is constrained by the prospect of internal corruption and/or monitoring costs. This constraint may generate structurally independent segments. When its members are provided with the same incentive system, the middle rank of a supervision chain displays the lowest external corruption, but there is more scope for internal corruption in the upper part than in the lower part.

Bac, Mehmet-Corruption and Supervision Costs in HierarchiesWe study the problem of organizing three agents in a hierarchical monitoring structure and designing a corresponding incentive system to minimize the cost of implementing a target level of corruption. We show that the possibility of collusion may prevent the implementation of anything less than full corruption. In relatively flat hierarchies, economies of scale in monitoring reduce implementation costs but may increase the risk of collusion. We contrast the performance of the hierarchy where one supervisor monitors two subordinates with the supervision chain, whose upper part is shown to display a higher risk of collusion than its lower part.

This paper provides an analysis of the corruption problem in public organizations. It distinguishes between two types of corruption (individual/organized) and crime (bribe for a legal/illegal application), and between two occasions (before/after detection) for partial and full collusion. The integrated supervision procedure, where monitoring and review are centralized, displays higher individual corruption but a lower risk of organized corruption than the alternative, separated supervision procedure. Higher penalties and bribes, and lower rewards to supervisors, increase the risk of all types of collusion under both procedures. A trade-off is involved in the choice of the supervision procedure and penalties: Reducing individual corruption brings about a higher risk of organized corruption.

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