Observable and Renegotiable Contracts as Commitments to Cooperate
AbstractWe study an example of strategic delegation in Cournot duopoly and show that if contracts are both observable and renegotiable before becoming common knowledge at the outset of the delegated game, the strategic value of contracts is preserved, but the set of equilibria is greatly enlarged. Managerial contracts can be used by owners to co-ordinate on any product market equilibrium allowing them to get a level of profit at least as large as the profit obtainable in the strategic delegation equilibrium without renegotiation, which is used as a threat point. The equilibrium set includes joint profit maximisation.
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Bibliographic InfoPaper provided by Università Cattolica del Sacro Cuore, Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo (DISEIS) in its series DISEIS - Quaderni del Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo with number dis0801.
Date of creation: 2008
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More information through EDIRC
Delegation; Observability; Renegotiation; Collusion;
Find related papers by JEL classification:
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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