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Coordination and bargaining power in contracting with externalities

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  • Galasso, Alberto

Abstract

Building on Genicot and Ray [G. Genicot, D. Ray, Contracts and externalities: How things fall apart, J. Econ. Theory 131 (2006) 71-100] we develop a model of non-cooperative bargaining that combines the two main approaches in the literature of contracting with externalities: the offer game (in which the principal makes simultaneous offers to the agents) and the bidding game (in which the agents make simultaneous offers to the principal). Allowing for agent coordination, we show that the outcome of our bargaining procedure may differ remarkably from those of the offer and the bidding games. In particular, we find that bargaining can break agents' coordination and that the principal's payoff can be decreasing in his own bargaining power.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 143 (2008)
Issue (Month): 1 (November)
Pages: 558-570

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Handle: RePEc:eee:jetheo:v:143:y:2008:i:1:p:558-570

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Coordination Bargaining Multilateral externalities Multi-agent games;

References

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  1. David Martimort & Lars Stole, 2001. "Contractual Externalities and Common Agency Equilibria," CESifo Working Paper Series 581, CESifo Group Munich.
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  9. Genicot, Garance & Ray, Debraj, 2006. "Contracts and externalities: How things fall apart," Journal of Economic Theory, Elsevier, vol. 131(1), pages 71-100, November.
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  12. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
  13. Sutton, John, 1986. "Non-cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 709-24, October.
  14. Segal, Ilya, 2003. "Coordination and discrimination in contracting with externalities: divide and conquer?," Journal of Economic Theory, Elsevier, vol. 113(2), pages 147-181, December.
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