Collusion and Discrimination\\in Organizations: Comment

Abstract

Ishiguro(2004) shows that discriminatory wage schemes are optimal among collusion-proof contracts under relative performance evaluation when agents collude. However, that analysis depends on the assumption that the agents cannot observe their performances. We investigate how optimal contracts should be modified when the agents observe the realized firm value. We show that the optimal collusion-proof contract can be a low-powered incentive scheme with buy-out options under some circumstances. Also, this suggests the frequent use of options in wage scheme as an optimal response to collusion.