Template-Type: ReDIF-Paper 1.0
Title: Implicit Collusion in Hierarchical Relationships
Author-Name: Joachim Wessels
Abstract: We reconsider Tirole's framework of a three-tier principal-agent
  	problem, in which he has shown that an incentive problem is caused
  	by the possibility of monetary side payments between the agent and
  	the middle -level supervisor. We consider the case where monetary
  	transfers are not possible, but a different, implicit kind of
  	collusion arises because the supervisor cares about the utility
  	enjoyed by his subordinate. This approach avoids the crucial problem
  	of how an explicit side contract could be enforced. We show that the
  	difference in the cause of collusion leads to a difference in the
  	way in which collusion is prevented: the agent's incentive scheme is
  	used to give incentives to the supervisor. An interdependence
  	between incentive schemes thus follows from utility interdependence.
Keywords: collusion, hierarchy, principal/agent theory, utility
  	interdependence.
Classification-JEL: D23; D82; J33; J53; L14; L22
Creation-Date: 1993-03
Revision-Date: 1994-10
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfa/bonsfa455.ps
File-Format: Application/PostScript
File-Size: 18 pages
Handle: RePEc:bon:bonsfa:455