Sequential Contracting with Multiple Principals
Abstract
This paper considers dynamic games in which multiple principals contract sequentially and non-cooperatively with the same agent and provides characterization results useful for applications. Our benchmark model is one of private contracting in which downstream principals do not observe upstream mechanisms, nor the decisions taken in these mechanisms. We show that any equilibrium outcome that can be sustained with any arbitrary strategy space for the principals can also be sustained by restricting the principals to offer extended direct mechanisms. In these mechanisms, the agent first reports his extended type (i.e. his exogenous private information along with the endogenous payoff-relevant decisions contracted upstream), the principal then responds by offering the agent a (possibly degenerate) menu of contracts that are payoff— equivalent for that extended type, and finally the agent selects a contract from this menu and the contract is executed. We also show that characterizing equilibria through extended direct mechanisms is facilitated by the fact that (i) each principal can be restricted to offer a single mechanism; (ii) when the agent’s strategy is Markov (i.e. it depends only on payoff-relevant information), each mechanism can be restricted to offer a single contract to each extended type; and (iii) restricting the agent’s strategy to be Markov is without loss in the case of deterministic decisions, e.g. when the contracts are deterministic and the agent does not mix over effort. We finally show how the aforementioned results must be adjusted to accommodate alternative assumptions on the observability of upstream histories and/or the sequence of contracting examined in the literature.Download Info
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Bibliographic Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6562.Length:
Date of creation: Nov 2007
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Handle: RePEc:cpr:ceprdp:6562
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Related research
Keywords: contracts; endogenous types; mechanism design; Sequential common agency;Other versions of this item:
- Pavan, Alessandro & Calzolari, Giacomo, 2009. "Sequential contracting with multiple principals," Journal of Economic Theory, Elsevier, vol. 144(2), pages 503-531, March.
- Giacomo Calzolari & Alessandro Pavan, 2007. "Sequential Contracting with Multiple Principals," Discussion Papers 1457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Giacomo Calzolari & Alessandro Pavan, 2008. "Sequential Contracting with Multiple Principals," Discussion Papers 1499, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-17 (All new papers)
- NEP-GTH-2007-11-17 (Game Theory)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Sambuddha Ghosh & Seungjin Han, 2012.
"Dynamic Competing Mechanisms,"
Department of Economics Working Papers
2012-03, McMaster University.
- Ghosh, Sambuddha & Han, Seungjin, 2012. "Dynamic Competing Mechanisms," Micro Theory Working Papers seungjin_han-2012-12, Microeconomics.ca Website, revised 04 Apr 2012.
- Peters, Michael & Troncoso-Valverde, Cristian, 2010. "A Folk Theorem for Competing Mechanisms," Micro Theory Working Papers michael_peters-2010-17, Microeconomics.ca Website, revised 10 Jun 2010.
- Peters, Michael, 2010. "On the Revelation Principle and Reciprocal Mechanisms in Competing Mechanism Games," Micro Theory Working Papers michael_peters-2010-18, Microeconomics.ca Website, revised 13 May 2010.
- Giacomo Calzolari & Alessandro Pavan, 2008.
"On the Use of Menus in Sequential Common Agency,"
Discussion Papers
1498, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Calzolari, Giacomo & Pavan, Alessandro, 2008. "On the use of menus in sequential common agency," Games and Economic Behavior, Elsevier, vol. 64(1), pages 329-334, September.
- Seungjin Han, 2012. "Implicit Collusion in Non-Exclusive Contracting under Adverse Selection," Department of Economics Working Papers 2012-15, McMaster University, revised Apr 2013.
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