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Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship

Strausz,R.G.
Abstract
This paper describes a principal-agent relationship with a supervisor who has information about the agent. The agent and the supervisor have the possibility to collude and misinform the principal. From the literature we know that there exists an optimal contract which excludes collusion in equilibrium. The optimal contract, however, is ex post inefficient and creates scope for renegotiation. If renegotiation is allowed then under some parameter constellations the optimal contract is a contract which necessarily induces collusion. The paper thus shows that the principal's behavior toward ex post inefficiencies may determine whether collusion occurs in equilibrium.
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Date
1995
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Publisher
CentER
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Tilburg University Research Output Collection
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48.pdf
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Strausz, R G 1995 'Collusion and Renegotiation in a Principal-Supervisor-Agent Relationship' CentER Discussion Paper, vol. 1995-48, CentER.
URI
https://hdl.handle.net/20.500.14602/26244
License
info:eu-repo/semantics/restrictedAccess
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