Collusion under Asymmetric Information

When applied to groups, the revelation principle postulates a Bayesian-Nash behavior between agents. Their binding agreements are unenforceable or the principal can prevent them at no cost. The authors analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information. They characterize the set of implementable collusion-proof contracts both when the principal offers anonymous and nonanonymous contracts. After having isolated the nexi and the stakes of collusion, the authors proceed to normative analysis, do some comparative statics, discuss their concept of collusion-proofness, and provide some insights about transaction costs in side-contracting.

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