Papers in the seminar series are also published on internet in Adobe Acrobat (PDF) format. Download from http://www.iies.su.se/ Seminar Papers are preliminary material circulated to stimulate discussion and critical comment. Abstract This paper analyses the incentives for collusion when an industry is regulated by means of yardstick competition. The central assumption is that …rms must write collusive side contracts before the revelation of private information and are unable to communicate later. It is shown that optimal collusion-proof regulation demands more high-powered (low-powered) incentives to high-productivity (low-productivity) …rms than prescribed by the second-best contract. Collusion is costly to society also when correlation of private information is near perfect. This contrasts with the result by La¤ont and Martimort (1998b), that the cost of collusion vanishes in the limit.JEL Classi…cation: L51.

This is the accepted version of the paper.This version of the publication may differ from the final published version. We consider an economy with two language groups, where only agents who share a language can produce together. Schooling enhances the productivity of students. Individuals attending a unilingual school end up speaking the language of instruction only, while bilingual schools render individuals bilingual at the same cost. The politically dominant group (not necessarily the majority) chooses the type(s) of schools accessible to each language group, and then individuals decide whether to attend school. We show that the dominant either choose laissez-faire or restrict access to schools in the language of the dominated. Instead, the dominated favour the use of their own language. Thus, while agents do not derive utility from speaking their mother tongue, language conflicts of the expected type endogenously arise. Democracy (majority rule) always leads to the implementation of a socially optimal education system, while restrictions to the use of the language of the dominated are implemented too often under minority rule. The model is consistent with evidence from Belgium, France, and Finland. Permanent repository linkJEL classification : I2, J15.

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The Robert Schuman Centre for Advanced Studies (RSCAS), created in 1992 and directed by Professor Brigid Laffan, aims to develop inter-disciplinary and comparative research and to promote work on the major issues facing the process of integration and European society. The Centre is home to a large post-doctoral programme and hosts major research programmes and projects, and a range of working groups and ad hoc initiatives. The research agenda is organised around a set of core themes and is continuously evolving, reflecting the changing agenda of European integration and the expanding membership of the European Union.

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