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Counter Marginalization of Information Rents: Implementing Negatively Correlated Compensation Schemes for Colluding Parties
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Gorkem Celik
Published/Copyright:
February 2, 2008
A principal contracts with a productive agent whose production cost is private information and with an insurer who can insure the principal against variations in the payment to the agent. The insurer and the agent can collude in their responses to the principal's contract. Non-cooperative play of the principal's contract constitutes the outside option for the colluding parties. In this setup, we characterize the implementable outcomes for the principal. We then identify the optimal implementable outcome under the assumption that the principal faces a budget constraint. The optimal outcome provides the principal with "partial" insurance. For higher realizations of the production cost, the budget may not be exhausted even though the principal is not directly concerned with the unspent portion of the monetary funds.
Keywords: collusion; mechanism design
Published Online: 2008-2-2
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Topics Article
- When Stackelberg and Cournot Equilibria Coincide
- Conflict and Consensus: A Theory of Control in Organisations
- Backward Integrated Information Gatekeepers and Independent Divisions in the Product Market
- Identification of Individual Demands from Market Data under Uncertainty
- On the Role of Uncertainty in the Risk-Incentives Tradeoff
- Time-to-Build and the Inverse U-Shape Investment-Uncertainty Relationship
- Revisiting Independence and Stochastic Dominance for Compound Lotteries
- On Competitive Equilibria with Asymmetric Information
- A Duopoly Location Toolkit: Consumer Densities Which Yield Unique Spatial Duopoly Equilibria
- Purchasing Power Parity with Strategic Markets
- Global vs. Local Information in (Anti-)Coordination Problems with Imitators
- Costly Evidence Production and the Limits of Verifiability
- Research Joint Ventures, Optimal Licensing, and the R&D Subsidy Policy
- Comparative Statics and Welfare in Heterogeneous All-Pay Auctions: Bribes, Caps, and Performance Thresholds
- Ex Post Private Information and Monopolistic Screening
- Passing the Buck in Sequential Negotiation
- Bidding Strategies for Simultaneous Ascending Auctions
- The Dirty Face Problem with Unawareness
- Cost Pass-Through under Delegation
- Contributions Article
- Empirical Implications of Information Structure in Finite Extensive Form Games
- Counter Marginalization of Information Rents: Implementing Negatively Correlated Compensation Schemes for Colluding Parties
- Forgiving-Proof Equilibrium in Infinitely Repeated Games
- A Categorical Model of Cognition and Biased Decision Making
- Mechanism Design with Moderate Evidence Cost
- Connectivity and Allocation Rule in a Directed Network
- Competing for Recognition through Public Good Provision
- Principal-Agent Problems with Exit Options
- Herd Behavior and Contagion in Financial Markets
- A Constructive Proof that Learning in Repeated Games Leads to Nash Equilibria
- Advances Article
- The Full Surplus Extraction Theorem with Hidden Actions
