Optimal Delegation in Nash Bargaining
AbstractWhen appointing a representative in negotiations, the principal can o er his agent a offer contract that promises a percentage of the bargaining result, and a bonus payment result (or penalty) if bargaining fails. Conventional wisdom of contract theory seems to suggest that the share should be as great as possible to provide proper incentives for a risk-neutral agent, while the bonus should be small or even negative. Drawing on the symmetric Nash bargaining solution, this paper argues that the optimal share is rather small, whereas the optimal bonus is rather large.
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Bibliographic InfoPaper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 09001.
Length: 9 pages
Date of creation: Jan 2009
Date of revision:
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Endogenous threat points; marginal valuation; strategic moves;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-03 (All new papers)
- NEP-GTH-2009-06-03 (Game Theory)
- NEP-MIC-2009-06-03 (Microeconomics)
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