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Cooperative interim contract and re-contract: Chandler's M-form firm

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  • Tatsuro Ichiishi

    (Department of Economics, Ohio State University, Columbus, OH 43210-1172, USA)

  • Murat R. Sertel

    (Center for Economic Design, Bogaziçi University, TURKEY)

Abstract

At an interim stage players possessing only their private information freely communicate with each other to coordinate their strategies. This results in a core strategy, which is interpreted as an equilibrium set of players' alternative type-contingent contract offers to their fellows. From this set of offers each player then chooses an optimal one and engages in some subsequent action, thus possibly revealing some private information to the others. Now with new information thus obtained from each other, the players play a new game to re-write their contract. In all of the optimization and gaming just described, Bayesian incentive compatibility plays a central role. These ideas are formulated within a model of a profit-center game with incomplete information which formally describes interaction of the asymmetrically informed profit-centers in Chandler's multidivisional firm.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 11 (1998)
Issue (Month): 3 ()
Pages: 523-543

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Handle: RePEc:spr:joecth:v:11:y:1998:i:3:p:523-543

Note: Received: May 17, 1996; revised version: January 14, 1997
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Cited by:
  1. Rajiv Vohra & Bhaskar Dutta, 2003. "Incomplete Information, Credibility and the Core," Working Papers 2003-21, Brown University, Department of Economics.
  2. Forges, Francoise & Minelli, Enrico & Vohra, Rajiv, 2002. "Incentives and the core of an exchange economy: a survey," Journal of Mathematical Economics, Elsevier, vol. 38(1-2), pages 1-41, September.
  3. Krasa, Stefan, 1999. "Unimprovable Allocations in Economies with Incomplete Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 144-168, July.
  4. Krasa, Stefan & Sharma, Tridib & Villamil, Anne P., 2005. "Debt contracts and cooperative improvements," Journal of Mathematical Economics, Elsevier, vol. 41(7), pages 857-874, November.

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