Mechanism design with collusion and correlation

In a public good environment with positively correlated types, we character ize optimal mechanisms when agents have private information and can enter c ollusive agreements. First, we prove a weak-collusion-proof principle accor ding to which there is no restriction for the principal in offering weak-co llusion-proof mechanisms. Second, with this principle, we characterize the set of allocations that satisfy individual and coalitional incentive constr aints. The optimal weakly collusion-proof mechanism calls for distortions a way from first-best efficiency obtained without collusion. Allowing collusi on restores continuity between the correlated and the uncorrelated environm ents. When the correlation becomes almost perfect, first-best efficiency is approached. Finally, the optimal collusion-proof mechanism is strongly rat ifiable.