Third-Party Budget Breakers and Side Contracting in Team Production
In a team production problem with unverifiable effort, budget breaking is essential to implementing efficient levels of effort. This short paper considers the use of a third party, who does not exert effort, in a setting with general contracts that can include message games, as a way to remove resources from the team. I show that if side contracting can influence behavior in a message game in the original contract, the addition of the third party is not helpful. My view of side contracting complements that of Baliga and Sjostrom (2009) in exploring the nature of side contracting that is needed in order for the third party to be useful for budget breaking.
Volume (Year): 32 (2012)
Issue (Month): 3 ()
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- Bengt Holmstrom, 1982.
"Moral Hazard in Teams,"
Bell Journal of Economics,
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