Team Beats Collusion∗
نویسندگان
چکیده
This paper analyzes optimal contracts in a linear hidden-action model with normally distributed returns possessing two moments that are governed jointly by two agents, who can observe each others’ effort levels and draft enforceable side–contracts on chosen effort levels and realized returns. After showing that standard constraints, resulting in incentive–contracts, may fail to ensure implementability, we examine (centralized) collusion–proof contracts and (decentralized) team–contracts. We prove that optimal team–contracts provide the highest implementable returns to the principal. In other words, the principal may restrict attention to outsourcing/decentralization without any loss of generality. Moreover, situations in which incentive–contracts are collusion– proof, thus implementable, are fully characterized. Journal of Economic Literature Classification Numbers: D82; J30; M12.
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