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Moral Hazard and Bargaining Power

Author

Listed:
  • Demougin Dominique

    (Humboldt University,Berlin, Germany)

  • Helm Carsten

    (Technical University,Darmstadt, Germany)

Abstract

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.

Suggested Citation

  • Demougin Dominique & Helm Carsten, 2006. "Moral Hazard and Bargaining Power," German Economic Review, De Gruyter, vol. 7(4), pages 463-470, December.
    • Handle: RePEc:bpj:germec:v:7:y:2006:i:4:p:463-470
    DOI: 10.1111/j.1468-0475.2006.00130.x
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    Cited by:

    1. Sanxi Li & Hailin Sun & Jianye Yan & Xundong Yin, 2015. "Risk aversion in the Nash bargaining problem with uncertainty," Journal of Economics, Springer, vol. 115(3), pages 257-274, July.
    2. Demougin, Dominique M. & Helm, Carsten, 2008. "Incentive contracts and efficient unemployment benefits," Darmstadt Discussion Papers in Economics 191, Darmstadt University of Technology, Department of Law and Economics.
    3. Bruno Deffains & Dominique Demougin, 2023. "Capitation taxes and the regulation of professional services," European Journal of Law and Economics, Springer, vol. 55(2), pages 167-193, April.
    4. Telalagic, S., 2012. "Domestic Production as a Source of Marital Power: Theory and Evidence from Malawi," Cambridge Working Papers in Economics 1243, Faculty of Economics, University of Cambridge.
    5. Gan, Liu & Luo, Pengfei & Yang, Zhaojun, 2016. "Real option, debt maturity and equity default swaps under negotiation," Finance Research Letters, Elsevier, vol. 18(C), pages 278-284.
    6. Michela Cella & Federico Etro, 2016. "Contract competition between hierarchies, managerial compensation and imperfectly correlated shocks," Journal of Economics, Springer, vol. 118(3), pages 193-218, July.
    7. Helm, Carsten, 2008. "How liable should an exporter be?: The case of trade in hazardous goods," International Review of Law and Economics, Elsevier, vol. 28(4), pages 263-271, December.
    8. repec:old:wpaper:348 is not listed on IDEAS
    9. Itza Curiel & Sonia Di Giannatale & Juan Herrera & Katya Rodríguez, 2012. "Pareto Frontier of a Dynamic Principal–Agent Model with Discrete Actions: An Evolutionary Multi-Objective Approach," Computational Economics, Springer;Society for Computational Economics, vol. 40(4), pages 415-443, December.
    10. Dittrich, Marcus & Städter, Silvio, 2015. "Moral hazard and bargaining over incentive contracts," Research in Economics, Elsevier, vol. 69(1), pages 75-85.
    11. Bental, Benjamin & Demougin, Dominique, 2010. "Declining labor shares and bargaining power: An institutional explanation," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 443-456, March.
    12. repec:dar:wpaper:35490 is not listed on IDEAS
    13. Carsten Helm & Dominique Demougin, 2012. "Incentive Contracts and Efficient Unemployment Benefits in a Globalized World," Working Papers V-348-12, University of Oldenburg, Department of Economics, revised Aug 2012.
    14. Buso, Marco & Moretto, Michele & Zormpas, Dimitrios, 2021. "Excess returns in Public-Private Partnerships: Do governments pay too much?," Economic Modelling, Elsevier, vol. 102(C).
    15. Gick, Wolfgang, 2015. "A Theory of Delegated Contracting," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113069, Verein für Socialpolitik / German Economic Association.
    16. Itza Tlaloc Quetzalcoatl Curiel-Cabral & Sonia Giannatale & Giselle Labrador-Badía, 2024. "Risk Aversion, Reservation Utility and Bargaining Power: An Evolutionary Algorithm Approximation of Incentive Contracts," Computational Economics, Springer;Society for Computational Economics, vol. 63(2), pages 477-511, February.
    17. Yanbin Chen & Pu Chen & Yumei Guo & Sanxi Li & Dongmin Yao, 2019. "Bargaining to Design Contracts under Moral Hazard," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(4), pages 714-735.
    18. Demougin, Dominique & Helm, Carsten, 2023. "Overwhelmed by routine tasks: A multitasking principal agent perspective," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 654-669.
    19. Dominique Demougin & Benjamin Bental, 2025. "Procedural vs. Substantive Approaches in Non-Comprehensive Contracts," CESifo Working Paper Series 11861, CESifo.
    20. Benjamin Bental & Bruno Deffains & Dominique Demougin, 2020. "Interpreting contracts: the purposive approach and non-comprehensive incentive contracts," European Journal of Law and Economics, Springer, vol. 50(2), pages 241-265, October.
    21. Kragl, Jenny & Gogova, Martina, 2013. "Wage Bargaining when Workers Have Fairness Concerns," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79790, Verein für Socialpolitik / German Economic Association.
    22. Zimper Alexander, 2013. "Optimal Liquidity Provision Through a Demand Deposit Scheme: The Jacklin Critique Revisited," German Economic Review, De Gruyter, vol. 14(1), pages 89-107, February.

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