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

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Author Info
Jesse Bull () (Department of Economics, Florida International University)

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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://www.fiu.edu/orgs/economics/wp2009/09-09.pdf
File Format: application/pdf
File Function: Revised version, 2009
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Publisher 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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Find related papers by JEL classification:
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)

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  1. Sandeep Baliga & Tomas Sjostrom, 2009. "Contracting with Third Parties," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 75-100, February. [Downloadable!]
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  2. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn. [Downloadable!] (restricted)
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This page was last updated on 2009-11-3.

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