IDEAS home Printed from https://ideas.repec.org/a/rje/randje/v20y1989iautumnp291-307.html
   My bibliography  Save this article

Tripartite Income-Employment Contracts and Coalition Incentive Compatibility

Author

Listed:
  • Murray Brown
  • Elmar Wolfstetter

Abstract

Tripartite contracts between workers, a firm, and an insurance broker Pareto dominate the usual bilateral arrangements if coalitions are not feasible. They do this by allowing the broker to run surpluses over a reservation expected utility in some states and deficits in others. We show that these contracts are manipulable by coalitions. This motivates our main contribution -- the definition and characterization of coalition incentive compatible tripartite contracts. We then ask whether broker intermediation can still be useful. The answer is that not every coalition incentive compatibility requirement annuls the critical budget-breaking property. Specifically, if firm-broker coalitions are feasible, there is no three-party contract that is coalition incentive compatible and Pareto superior to bilateral firm-worker contracts, except in the extreme case where the workers' demand for leisure is income inelastic But if only a firm-worker coalition can form, the addition of a broker to a bilateral arrangement does reduce the welfare losses caused by the existence of asymmetric information.

Suggested Citation

  • Murray Brown & Elmar Wolfstetter, 1989. "Tripartite Income-Employment Contracts and Coalition Incentive Compatibility," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 291-307, Autumn.
    • Handle: RePEc:rje:randje:v:20:y:1989:i:autumn:p:291-307
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0741-6261%28198923%2920%3A3%3C291%3ATICACI%3E2.0.CO%3B2-S&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dominique Demougin & Oliver Fabel, 2007. "Entrepreneurship and the Division of Ownership in New Ventures," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 111-128, March.
    2. Dominique Demougin & Oliver Fabel, 2006. "The Division of Ownership in New Ventures," SFB 649 Discussion Papers SFB649DP2006-047, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rje:randje:v:20:y:1989:i:autumn:p:291-307. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.rje.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.