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Contracting with Third Parties

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  • Sandeep Baliga
  • Tomas Sjöström

Abstract

In bilateral holdup and moral hazard in teams models, introducing a third party allows implementation of the first best, even if renegotiation is possible. Fines paid to the third party provide incentives for truth-telling and investment. This result holds even if the third party is corruptible, as long as the grand coalition has access to the same contracting technology as any colluding subcoalition. (JEL D86, D82)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.1.1.75
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 1 (2009)
Issue (Month): 1 (February)
Pages: 75-100

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Handle: RePEc:aea:aejmic:v:1:y:2009:i:1:p:75-100

Note: DOI: 10.1257/mic.1.1.75
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Citations

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Cited by:
  1. Evans, R., 2006. "Mechanism Design with Renegotiation and Costly Messages," Cambridge Working Papers in Economics 0626, Faculty of Economics, University of Cambridge.
  2. Watson, Joel & Buzard, Kristy, 2009. "Contract, Renegotiation, and Hold Up: General Results on the Technology of Trade and Investment," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt3923q7kz, Department of Economics, UC San Diego.
  3. Stefano Comino & Antonio Nicolò & Piero Tedeschi, 2006. "Termination Clauses in Partnerships," Working Papers, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica 20060505, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica.
  4. Bester, Helmut & Krähmer, Daniel, 2008. "Exit options in incomplete contracts with asymmetric information," Discussion Papers 2008/23, Free University Berlin, School of Business & Economics.
  5. Buzard, Kristy & Watson, Joel, 2010. "Contract, Renegotiation, and Hold Up: Results on the Technology of Trade and Investment," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt3df3q4vg, Department of Economics, UC San Diego.
  6. Yeon-Koo Che & Jozsef Sakovics, 2006. "The Hold-up Problem," ESE Discussion Papers 142, Edinburgh School of Economics, University of Edinburgh.
  7. Bester, Helmut & Krähmer, Daniel, 2013. "Exit options and the allocation of authority," Discussion Papers 2013/5, Free University Berlin, School of Business & Economics.
  8. Jesse Bull, 2012. "Third-Party Budget Breakers and Side Contracting in Team Production," Economics Bulletin, AccessEcon, vol. 32(3), pages 2606-2614.
  9. Neeman, Zvika & Pavlov, Gregory, 2013. "Ex post renegotiation-proof mechanism design," Journal of Economic Theory, Elsevier, vol. 148(2), pages 473-501.
  10. Watson, Joel & Wignall, Chris, 2009. "Hold-Up and Durable Trading Opportunities," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt8p8284wg, Department of Economics, UC San Diego.

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