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Third-Party Budget Breakers and Side Contracting in Team Production

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Author Info

  • Jesse Bull

    ()
    (Florida International University)

Abstract

In a team production problem with unverifiable effort, budget breaking is essential to implementing efficient levels of effort. This short paper considers the use of a third party, who does not exert effort, in a setting with general contracts that can include message games, as a way to remove resources from the team. I show that if side contracting can influence behavior in a message game in the original contract, the addition of the third party is not helpful. My view of side contracting complements that of Baliga and Sjostrom (2009) in exploring the nature of side contracting that is needed in order for the third party to be useful for budget breaking.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I3-P249.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 3 ()
Pages: 2606-2614

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Handle: RePEc:ebl:ecbull:eb-12-00196

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Related research

Keywords: side contracting; team production; budget breaking; collusion;

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  1. Sandeep Baliga & Tomas Sjostrom, 2005. "Contracting with Third Parties," Levine's Bibliography 784828000000000408, UCLA Department of Economics.
  2. Bull, Jesse & Watson, Joel, 2004. "Evidence disclosure and verifiability," Journal of Economic Theory, Elsevier, vol. 118(1), pages 1-31, September.
  3. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Cited by:
  1. Watson, Joel & Buzard, Kristy, 2012. "Contract, renegotiation, and hold up: Results on the technology of trade and investment," Theoretical Economics, Econometric Society, vol. 7(2), May.
  2. Watson, Joel & Wignall, Chris, 2009. "Hold-Up and Durable Trading Opportunities," University of California at San Diego, Economics Working Paper Series qt8p8284wg, Department of Economics, UC San Diego.
  3. 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 qt3923q7kz, Department of Economics, UC San Diego.

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