Decentralization and collusion

We consider a model where agents work in sequence on a project, share information not available to the principal, and can collude. Due to limited liability the Cease theorem does not apply. The distribution of surplus among the agents is therefore an important control variable for the principal, which gives us a theory of how to delegate in an organization subject to moral hazard. The optimal distribution of surplus can always be achieved by delegating in the right way (decentralization) without using "message games." Jour-nai of Economic Literature Classification Numbers: D23, D82, L14, L22. (C) 1998 Academic Press.