Monitoring and collusion with "soft" information

Research output: Contribution to journalArticle

20 Scopus citations

Abstract

In the standard principal-supervisor-agent model with collusion, Tirole (1986) shows that employing a supervisor is profitable for the principal if the supervisor's signal of the agent's cost of production is "hard" (i.e., verifiable but hideable). Anecdotal evidence suggests that information is sometimes "soft" (i.e., unverifiable). We show that, in fact, it is profitable to employ a supervisor when information is "soft" even though the three parties can collude. Therefore, standard applications of the principal-supervisor-agent model to regulation and auditing have more scope than previously thought.

Original languageEnglish (US)
Pages (from-to)434-440
Number of pages7
JournalJournal of Law, Economics, and Organization
Volume15
Issue number2
DOIs
StatePublished - Jul 1999

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management
  • Law

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