I investigate when a exible bargaining agenda, where side payments are possible, facilitates cooperation in a context with strategic delegation. On the one hand, allowing side payments may be necessary when one partys participation constraint otherwise would be violated. On the other, with side payments each principal appoints a delegate that values the project less, since this increases her bargaining power. Reluctant agents, in turn, implement too few projects. I show that side payments are bad if the heterogeneity is small while the uncertainty and the typical value of the project are large. With a larger number of parties there may be a stalemate without side payments, but delegation becomes more strategic as well, and cooperation decreases in either case.
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number
1452.
Length: Date of creation: Sep 2007 Date of revision: Handle: RePEc:nwu:cmsems:1452
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Find related papers by JEL classification: C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation F53 - International Economics - - International Relations and International Political Economy - - - International Agreements and Observance; International Organizations H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
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