Séminaire

Relational incentive contracts with collusion

Marta Troya Martinez (Toulouse School of Economics)

27 mars 2017, 14h00–15h30

Salle MF 323

Industrial Organization seminar

Résumé

This article explores how the possibility of collusion affects relational contracts. Responsibility for a contract is delegated to a supervisor who cares about both production and kickbacks paid by the agents, neither of which are contractible. We characterize the optimal supervisor-agent relational contract and show that the relationship between joint surplus and production is nonmonotonic. Delegation may benefit the principal when relational contracting is difficult by easing the time inconsistency problem of paying incentive payments. For the principal, the optimal supervisor has incentives that are partially, but not completely, aligned with her own.