Moral Hazard and Renegotiation with Multiple Agents
AbstractWe investigate the effects of contract renegotiation in multi-agent situations where risk-averse agents negotiate a contract offer to the principal after the agents observe a common, unverifiable perfect signal about their actions. We show that renegotiation with multiple agents reduces the cost of implementing any implementable action profile down to the first-best level, even though the principal cannot observe the agents' actions. Moreover, it is sufficient for the principal to use a "simple" initial contract, in the sense that it consists of no more than a single sharing scheme for each agent and the total payments to the agents are the same regardless of the realised state. An important implication is that decentralization, in the sense of delegated negotiation and proposals from the agents, can be as effective as centralized schemes that utilize revelation mechanisms in unrestricted ways. Copyright 2001 by The Review of Economic Studies Limited
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 68 (2001)
Issue (Month): 1 (January)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
Other versions of this item:
- Ishiguro, S. & Itoh, H., 1998. "Moral Hazard and Renegotiation with Multiple Agents," ISER Discussion Paper 0471, Institute of Social and Economic Research, Osaka University.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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- G. Bono, 2005. "Monitoring Team Production by Design," Working Papers 540, Dipartimento Scienze Economiche, Universita' di Bologna.
- Shingo Ishiguro, 2004. "Information Aggregation and Efficiency in Agency Contracts with Endogenous Externality," Econometric Society 2004 Australasian Meetings 60, Econometric Society.
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