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The (Negligible) Benefit of Moving First: Efficiency and Equity in Principal-Agent Negotiations

Author

Listed:
  • Andrew B. Whitford

    (The University of Georgia)

  • William P. Bottom

    (Washington University)

  • Gary J. Miller

    (Washington University)

Abstract

Like the first-mover in an ultimatum game, the principal is a first-mover with foreknowledge of the agent’s “rational” best response function. The solution to the “principal’s problem” is to choose a contract that maximizes the principal’s expected profit given the agent’s marginal efficacy and marginal effort cost. However, this paper reports experiments that show that principals make large concessions toward an equal division outcome. As in ultimatum games, agents are at times willing to punish principals who are perceived as being overly acquisitive. Variations in agent effort cost and effectiveness that should (theoretically) produce qualitatively different game-theoretic equilibria have little impact on outcomes.

Suggested Citation

  • Andrew B. Whitford & William P. Bottom & Gary J. Miller, 2013. "The (Negligible) Benefit of Moving First: Efficiency and Equity in Principal-Agent Negotiations," Group Decision and Negotiation, Springer, vol. 22(3), pages 499-518, May.
    • Handle: RePEc:spr:grdene:v:22:y:2013:i:3:d:10.1007_s10726-011-9280-4
    DOI: 10.1007/s10726-011-9280-4
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    References listed on IDEAS

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    1. Julio Cezar Russo & Marco Antonio Guimarães Dias & André Barreira da Silva Rocha & Fernando Luiz Cyrino Oliveira, 2018. "Renegotiation in Public–Private Partnerships: An Incentive Mechanism Approach," Group Decision and Negotiation, Springer, vol. 27(6), pages 949-979, December.

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