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Moral Hazard and Renegotiation with Multiple Agents

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  • Ishiguro, Shingo
  • Itoh, Hideshi

Abstract

We 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 Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 68 (2001)
Issue (Month): 1 (January)
Pages: 1-20

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Handle: RePEc:bla:restud:v:68:y:2001:i:1:p:1-20

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Cited by:
  1. G. Bono, 2005. "Monitoring Team Production by Design," Working Papers 540, Dipartimento Scienze Economiche, Universita' di Bologna.
  2. Shingo Ishiguro, 2004. "Information Aggregation and Efficiency in Agency Contracts with Endogenous Externality," Econometric Society 2004 Australasian Meetings 60, Econometric Society.
  3. Chandrasekher, Madhav, 0. "Unraveling in a repeated moral hazard model with multiple agents," Theoretical Economics, Econometric Society.
  4. Hiroshi Osano & Mami Kobayashi, 2003. "Double Moral Hazard and Renegotiation," KIER Working Papers 563, Kyoto University, Institute of Economic Research.
  5. Chrisman, James J. & Chua, Jess H. & Kellermanns, Franz W. & Chang, Erick P.C., 2007. "Are family managers agents or stewards? An exploratory study in privately held family firms," Journal of Business Research, Elsevier, vol. 60(10), pages 1030-1038, October.
  6. Bin R. Chen & Y. Stephen Chiu, 2013. "Interim Performance Evaluation in Contract Design," Economic Journal, Royal Economic Society, vol. 123, pages 665-698, 06.

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