Journal Article

Collusion, Delegation and Supervision with Soft Information

Antoine Faure-Grimaud, Jean-Jacques Laffont and David Martimort

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 70, issue 2, pages 253-279
Published in print April 2003 | ISSN: 0034-6527
Published online April 2003 | e-ISSN: 1467-937X | DOI:
Collusion, Delegation and Supervision with Soft Information

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This paper shows that supervision with soft information is valuable whenever supervisors and supervisees collude under asymmetric information and proceeds then to derive an Equivalence Principle between organizational forms of supervisory and productive activities. We consider an organization with an agent privately informed on his productivity and a risk averse supervisor getting signals on the agent's type. In a centralized organization, the principal can communicate and contract with both the supervisor and the agent. However, these two agents can collude against the principal. In a decentralized organization, the principal only communicates and contracts with the supervisor who in turn sub-contracts with the agent. We show that the two organizations achieve the same outcome. We discuss this equivalence and provide various comparative statics results to assess the efficiency of supervisory structures.

Journal Article.  0 words. 

Subjects: Economics

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