Decentralization of contracts with interim sidecontracting
AbstractThis paper gives a new explanation for the phenomena of subcontracting. A model in which a principal contracts two agents who work in a sequence on a project, have soft information and can collude is considered. Side-contracts between agents can be signed at any stage of the game. Due to limited liability and moral hazard agents obtain a rent. The principalâ€™s problem is to find the preferable contracting structure. It is shown that in this setting a decentralized contracting structure can be superior to a centralized structure for the principal. The paper derives the conditions under which this holds. Journal of Economic Literature Classification Numbers: D23, D82, L14, L22. Keywords: Contract delegation, Collusion, Interim side-contracting, Moral hazard.
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Bibliographic InfoPaper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/169684.
Date of creation: 2011
Date of revision:
Subcontractació; 33 - Economia;
Other versions of this item:
- Bernd Theilen, 2012. "Decentralization of contracts with interim side-contracting," Theory and Decision, Springer, vol. 73(4), pages 561-590, October.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
- NEP-CTA-2011-12-13 (Contract Theory & Applications)
- NEP-MIC-2011-12-13 (Microeconomics)
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