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A theory of authority in bilateral contracting

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  • Ambec, S.

Abstract

Two players are involved in a joint project during which a decision must be reached. Each player has a private information about future profits. Authority gives to a player the right to decide first among a pre-defined set of alternatives. In this framework, I show that (partial) authority should be assigned to the player who gets the higher share of total surplus. This organizational structure performs as well as with a uniform benevolent third-party acting as a principal. Classification-JEL:; D23; D82; G32; L22

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Bibliographic Info

Paper provided by Grenoble Applied Economics Laboratory (GAEL) in its series Working Papers with number 200303.

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Date of creation: 2003
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Handle: RePEc:gbl:wpaper:200303

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Keywords: CONTRACT; ASYMMETRIC INFORMATION; CONTROL RIGHTS; LIMITED LIABILITY; HIDDEN INFORMATION;

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  1. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
  2. Dessein, Wouter, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Wiley Blackwell, vol. 69(4), pages 811-38, October.
  3. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  4. Mookherjee, Dilip & Reichelstein, Stefan, 1992. "Dominant strategy implementation of Bayesian incentive compatible allocation rules," Journal of Economic Theory, Elsevier, vol. 56(2), pages 378-399, April.
  5. Krähmer, Daniel, 2002. "Delegation versus authority," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-26, Social Science Research Center Berlin (WZB).
  6. Melamad, N. & Mookherjee, D. & Reichelstein, S., 1996. "Contract Complexity, Incentives and the Value of Delegation," Papers 70, Boston University - Industry Studies Programme.
  7. Michel Poitevin, 2000. "Can the theory of incentives explain decentralization?," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 878-906, November.
  8. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  9. Cremer, Jacques, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 275-95, May.
  10. Laffont, J.J. & Martimort, D., 1996. "Collusion Under Asymmetric Information," Papers 95.389, Toulouse - GREMAQ.
  11. d'ASPREMONT, Claude & GERARD-VARET, Louis-André, . "Incentives and incomplete information," CORE Discussion Papers RP -354, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Macho-Stadler, Ines & Perez-Castrillo, J David, 1998. "Centralized and Decentralized Contracts in a Moral Hazard Environment," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 489-510, December.
  13. Bester, Helmut, 2002. "Externalities and the Allocation of Decision Rights in the Theory of the Firm," CEPR Discussion Papers 3276, C.E.P.R. Discussion Papers.
  14. Lerner, Josh & Merges, Robert P, 1998. "The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 125-56, June.
  15. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
  16. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
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