Robustly Collusion-Proof Implementation

A contract with multiple agents may be susceptible to collusion. We show that agents' collusion imposes no cost in a large class of circumstances with risk neutral agents, including both uncorrelated and correlated types. In those circumstances, any payoff the principal can attain in the absence of collusion, including the second-best level, can be attained in the presence of collusion in a way robust to many aspects of collusion behavior. The collusion-proof implementation generalizes to a setting in which only a subset of agents may collude, provided that noncollusive agents' incentives can be protected via an ex post incentive compatible and ex post individually rational mechanism. Our collusion-proof implementation also sheds light on the extent to which hierarchical delegation of contracts can optimally respond to collusion. Copyright The Econometric Society 2006.

[1]  J. Tirole.  Hierarchies and Bureaucracies: On the Role of Collusion in Organizations , 1986 .

[2]  Dilip Mookherjee,et al.  The Organization of Supplier Networks: Effects of Delegation and Intermediation , 2004 .

[3]  George J. Mailath,et al.  Collusion in second price auctions with heterogeneous bidders , 1991 .

[4]  Richard P. McLean,et al.  Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent , 1985 .

[5]  Dilip Mookherjee,et al.  Dominant Strategy Implementation of Bayesian incentive Compatible Allocation Rules , 1992 .

[6]  C. Zheng.  OPTIMAL AUCTION WITH RESALE , 2002 .

[7]  Andrzej Skrzypacz,et al.  Tacit collusion in repeated auctions , 2001, J. Econ. Theory.

[8]  R. Myerson,et al.  Regulating a Monopolist with Unknown Costs , 1982 .

[9]  Vasiliki Skreta.  Mechanism design for arbitrary type spaces , 2006 .

[10]  Lucia Quesada,et al.  Modeling collusion as an informed principal problem , 2003 .

[11]  Andreas Blume,et al.  Modeling tacit collusion in auctions , 2008 .

[12]  Richard P. McLean,et al.  FULL EXTRACTION OF THE SURPLUS IN BAYESIAN AND DOMINANT STRATEGY AUCTIONS , 1988 .

[13]  B. Moldovanu,et al.  Efficient Design with Interdependent Valuations , 2001 .

[14]  Sandro Brusco,et al.  Collusion via Signalling in Simultaneous Ascending Bid Auctions with Heterogeneous Objects, with and without Complementarities , 2002 .

[15]  Subir Bose,et al.  Optimal Auctions with Ambiguity , 2004 .

[16]  Masaki Aoyagi,et al.  Bid rotation and collusion in repeated auctions , 2003, J. Econ. Theory.

[17]  Drew Fudenberg,et al.  Balanced-Budget Mechanisms with Incomplete Information , 1996 .

[18]  Jean-Jacques Laffont,et al.  On Coalition Incentive Compatibility , 1979 .

[19]  Domenico Menicucci,et al.  Optimal Second-Degree Price Discrimination and Arbitrage: On the Role of Asymmetric Information Among Buyers , 2005 .

[20]  E. Balder.  On the existence of optimal contract mechanisms for incomplete information principal-agent models , 1996 .

[21]  Péter Esö,et al.  Auction design with a risk averse seller , 1999 .

[22]  Dilip Mookherjee,et al.  Incentives and Coordination in Hierarchies , 2001 .

[23]  David Martimort,et al.  Collusion under Asymmetric Information , 1997 .

[24]  Dilip Mookherjee,et al.  Hierarchical decentralization of incentive contracts , 1995 .

[25]  Yeon-Koo Che,et al.  Collusion-proof implementation of optimal mechanisms , 2004 .

[26]  D. Graham,et al.  Collusive Bidder Behavior at Single-Object Second-Price and English Auctions , 1987, Journal of Political Economy.

[27]  M. Carter.  Foundations of mathematical economics , 2001 .

[28]  D. Fudenberg,et al.  Digitized by the Internet Archive in 2011 with Funding from Working Paper Department of Economics the Folk Theorem with Imperfect Public Information , 2022 .

[29]  C. d'Aspremont,et al.  Incentives and incomplete information , 1979 .

[30]  G. Kosenok,et al.  Individually Rational, Balanced-Budget Bayesian Mechanisms and the Informed Principal Problem , 2004 .

[31]  Gregory Pavlov.  Colluding on Participation Decisions , 2006 .

[32]  J. Laffont,et al.  Mechanism Design with Collusion and Correlation , 2000 .

[33]  Jeffrey C. Ely,et al.  Ex-Post Incentive Compatible Mechanism Design , 2002 .

[34]  Jacques Crémer.  Manipulations by Coalitions Under Asymmetric Information: The Case of Groves Mechanisms , 1996 .

[35]  Antoine Faure-Grimaud,et al.  Collusion, Delegation and Supervision with Soft Information , 2002 .

[36]  James Schummer,et al.  Bribing and signaling in second price auctions , 2004, Games Econ. Behav..

[37]  E. Stacchetti,et al.  Multidimensional Mechanism Design for Auctions with Externalities , 1999 .

[38]  M. Satterthwaite,et al.  Efficient Mechanisms for Bilateral Trading , 1983 .

[39]  C. Mezzetti,et al.  The Possibility of Efficient Mechanisms for Trading an Indivisible Object , 1993 .

[40]  David Martimort,et al.  Collusion and Delegation , 1998 .

[41]  Dilip Mookherjee,et al.  Contract Complexity, Incentives, and the Value of Delegation , 1997 .

[42]  K. Arrow.  The Property Rights Doctrine and Demand Revelation under Incomplete Information**This work was supported by National Science Foundation under Grant No. SOC75-21820 at the Institute for Mathematical Studies in the Social Sciences, Stanford University. , 1979 .

[43]  E. Maskin,et al.  The principal-agent relationship with an informed principal. II : Common values , 1992 .

[44]  Kim-Sau Chung,et al.  Auction Design with Tacit Collusion , 2003 .

[45]  Roger B. Myerson,et al.  Optimal Auction Design , 1981, Math. Oper. Res..

[46]  Philippe Jehiel,et al.  Collusion in Auctions with Externalities , 1998 .

[47]  Tomas Sjöström,et al.  Decentralization and Collusion , 1998 .