Chapter

Checks and Balances

Jean‐Jacques Laffont

in Incentives and Political Economy

Published in print October 2001 | ISBN: 9780199248681
Published online November 2003 | e-ISBN: 9780191596575 | DOI: http://dx.doi.org/10.1093/0199248680.003.0004

Series: Clarendon Lectures in Economics

 Checks and Balances

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This chapter studies the design of reciprocal supervision between members of the same hierarchy. It is shown that reciprocal capture may result in the form of a horizontal level exchange of favours, which is costly to society. An example is also given where collusion is beneficial as it affects transaction costs in some states of nature.

Keywords: collusion; exchange of favours; hierarchy; reciprocal capture; reciprocal supervision; social costs; transaction costs

Chapter.  9768 words.  Illustrated.

Subjects: Microeconomics

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