Ilya Segal (Department of Economics, University of California, Berkeley)
Abstract
The paper studies inefficiencies arising in contracting between one principal and N agents when the utility of each agent depends on all agents' trades with the principal. When the principal commits to a set of publicly observable bilateral contract offers, the arising inefficiency is due entirely to the externalities imposed on non-signers. In contrast, when the principal's offers are privately observed, the distortion is due to the externalities given agents' equilibrium trades. Comparison of the two externalities determines the relative efficiency of the two contracting regimes. In both cases, we show that when N is large, each agent can be treated as non-pivotal, provided that appropriate continuity assumptions are satisfied. We also study the case in which the principal can condition each agent's trade on other agents' messages. We characterize the set of such mechanisms in which each agent's participation is voluntary. When the principal can commit to any such mechanism, she implements the first-best outcome, while threatening each deviator with the harshest possible punishment. However, in the presence of noise that goes to zero slower than N goes to infinity, in the limit we obtain a (generally inefficient) outcome in which each agent feels non-pivotal.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by EconWPA in its series Public Economics with number
9802002.
Length: Date of creation: 23 Feb 1998 Date of revision: Handle: RePEc:wpa:wuwppe:9802002
Note: 79 pp; LaTex postscript .ps Contact details of provider: Web page: http://129.3.20.41
For technical questions regarding this item, or to correct its listing, contact: (EconWPA).
Related research
Keywords:
Find related papers by JEL classification: D62 - Microeconomics - - Welfare Economics - - - Externalities G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Levine, David K & Pesendorfer, Wolfgang, 1995.
"When Are Agents Negligible?,"
American Economic Review,
American Economic Association, vol. 85(5), pages 1160-70, December.
[Downloadable!] (restricted)
Other versions:
Wolfgang Pesendorfer & David Levine, 1992.
"When are Agents Negligible?,"
Discussion Papers
1018, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991.
"Naked Exclusion,"
American Economic Review,
American Economic Association, vol. 81(5), pages 1137-45, December.
[Downloadable!] (restricted)
Walker, Mark, 1979.
"A Generalization of the Maximum Theorem,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 267-72, February.
[Downloadable!] (restricted)
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)