The structure of organisation under adverse selection : informed principal and collusion

This thesis presents new results in the theory of organisation under adverse selection, in particular in the theory of informed principal and of collusion. In Chapter 1 we analyze a simple adverse selection model with one principal and one agent. They are both risk neutral and have private information about their type. We assume that the type of the principal is correlated with the one of the agent. The main result of the chapter is that the principal can extract a larger share of the surplus from the agent than in the case where her information is public. In Chapter 2 we study a model of informed principal with private values where the principal is risk neutral and the agent is risk averse. We show that the principal gains by not revealing her type to the agent through the contract offer. Moreover the allocation chosen by the principal embodies more risk for the agent than the standard second best solution. In Chapter 3 we study the delegation of a production process in a three-tier hierarchy. We allow the principal to costlessly monitor the communication, at the sub-contracting stage, between the lower levels of the hierarchy. We study two possible scenarios, one in which the principal observes the menu of sub-contracts offered by the first agent and the other in which she observes the report from the second agent. In both cases the monitoring damages the first agent and reduces production inefficiency. We then study how the agent can change the subcontract offer in an attempt to conceal the information that is monitored by the principal. In Chapter 4 we study a simple model with adverse selection where one principal contracts with two agents that can write collusive agreements. We assume that the principal does not know the distribution of the bargaining power at the side- contracting stage. We show that the bargaining strength of the agents does not affect the collusion proof equilibrium and discuss some possible applications.