Regulatory mechanism design with extortionary collusion

Dilip Mookherjee, Masatoshi Tsumagari

Research output: Contribution to journalArticlepeer-review


We study regulatory mechanism design with collusion between a privately informed agent and a less well-informed supervisor, incorporating ‘extortion’ which permits redistribution of rents within the coalition. We show the Collusion Proof Principle holds, and that the allocation of bargaining power between the supervisor and agent matters. Specifically, the Principal does not benefit from hiring the supervisor if the latter has less bargaining power vis-a-vis the agent. We provide an example where hiring the supervisor is valuable if she has greater bargaining power. These results indicate the importance of anti-collusion strategies that augment bargaining power of supervisors vis-a-vis agents.

Original languageEnglish
Article number105614
JournalJournal of Economic Theory
Publication statusPublished - 2023 Mar


  • Bargaining power
  • Collusion
  • Extortion
  • Mechanism design
  • Supervision

ASJC Scopus subject areas

  • Economics and Econometrics


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