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Third-Party Budget Breakers and Side-Contracting in Team Production

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  • Jesse Bull

    ()
    (Department of Economics, Florida International University)

Abstract

In a team production problem with unverifiable effort, budget breaking is essential to implementing efficient levels of effort. This short paper considers the use of a third party, who does not exert effort, in a setting with general contracts that can include message games, as a way to remove resources from the team. We show that if side contracting can influence behavior in a message game in the original contract, the addition of the third party is not helpful. Additionally, we compare our view of side contracting with that of Baliga and Sjostrom (2009) to explore the nature of side contracting that is needed in order for the third party to be useful for budget breaking.

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File URL: http://casgroup.fiu.edu/pages/docs/1569/1280267719_09-09.pdf
File Function: Revised version, 2009
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Bibliographic Info

Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0909.

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Length: 13 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:fiu:wpaper:0909

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  1. Sandeep Baliga & Tomas Sjostrom, 2005. "Contracting with Third Parties," Levine's Bibliography 784828000000000408, UCLA Department of Economics.
  2. Bull, Jesse & Watson, Joel, 2000. "Evidence Disclosure and Verifiability," University of California at San Diego, Economics Working Paper Series qt6th0060j, Department of Economics, UC San Diego.
  3. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
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Cited by:
  1. Watson, Joel & Buzard, Kristy, 2009. "Contract, Renegotiation, and Hold Up: General Results on the Technology of Trade and Investment," University of California at San Diego, Economics Working Paper Series qt3923q7kz, Department of Economics, UC San Diego.
  2. Buzard, Kristy & Watson, Joel, 2010. "Contract, Renegotiation, and Hold Up: Results on the Technology of Trade and Investment," University of California at San Diego, Economics Working Paper Series qt3df3q4vg, Department of Economics, UC San Diego.
  3. Watson, Joel & Wignall, Chris, 2009. "Hold-Up and Durable Trading Opportunities," University of California at San Diego, Economics Working Paper Series qt8p8284wg, Department of Economics, UC San Diego.

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