Moral Hazard and Bargaining Power
We introduce bargaining power in a moral hazard framework where parties are risk-neutral and the agent is financially constrained. We show that the same contract emerges if the concept of bargaining power is analyzed in either of the following three frameworks: in a standard principal-agent (P-A) framework by varying the agent's outside opportunity, in an alternating offer game, and in a generalized Nash-bargaining game. However, for sufficiently low levels of the agent's bargaining power, increasing it marginally does affect the equilibrium in the Nash-bargaining game, but not in the P-A model and in the alternating offer game. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2006.
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Volume (Year): 7 (2006)
Issue (Month): (November)
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- Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, February.
- Demougin, Dominique & Fluet, Claude, 2001. "Monitoring versus incentives," European Economic Review, Elsevier, vol. 45(9), pages 1741-1764, October.
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