COLLUSION UNDER ASYMMETRIC INFORMATION

When applied to groups, the Revelation Principle postulates a Bayesian -Nash behavior between agents. Their binding agreements are unenforcea ble or the principal can prevent them at no cost. We analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information. We characterize t he set of implementable collusion-proof contracts both when the princi pal offers anonymous and nonanonymous contracts. After having isolated the nexi and the stakes of collusion we proceed to a normative analys is, perform some comparative statics, discuss our concept of collusion -proofness, and provide some insights about transaction costs in side contracting.