Collusion and delegation under information control

Abstract

This paper studies how information control affects incentives for collusion and optimal organizational structures in principal–supervisor–agent relationships. I consider a model in which the principal designs the supervisor's signal on the productive agent's private information, and the supervisor and agent may collude. I show that the principal optimally delegates the interaction with the agent to the supervisor if either the supervisor's budget is large or the value of production is small. The principal prefers direct communication with the supervisor and agent if the supervisor's budget is sufficiently small and the value of production is high.

Frequent audits and honest audits

“…Our work shares some features with the literature on collusion in principal-supervisor-agent models that stemmed from the seminal work of Tirole (1986). 2 Within this literature, our work is most closely related to Asseyer (2020). Asseyer (2020) considers, like us, the problem of a regulator that designs the signal available to the supervisor.…”

“…2 Within this literature, our work is most closely related to Asseyer (2020). Asseyer (2020) considers, like us, the problem of a regulator that designs the signal available to the supervisor. 3 Asseyer's paper belongs more firmly than ours in this mechanism-design literature in which the principal offers an actual contract to the agent, whereas we focus on incomplete contracts.…”

“…3 Asseyer's paper belongs more firmly than ours in this mechanism-design literature in which the principal offers an actual contract to the agent, whereas we focus on incomplete contracts. Another relevant difference is that the type of the agent is exogenous in Asseyer (2020). This assumption is typical in this literature, with some notable exceptions, such as Hiriart, Martimort and Pouyet (2010), Yun (2010), andOrtner andChassang (2018).…”