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Selling authority

  • Lim, Wooyoung

This paper examines the bargaining over authority in principal–agent relationships in which a non-contractible decision must be made but decision rights are contractible and transferrable. An informed but self-interested agent makes a price offer to buy decision-making authority from an uninformed principal, who then decides to either accept or reject the offer. No matter how large the difference is between the parties’ preferences, there exists a continuum of perfect Bayesian equilibria in which authority is transferred with a probability of 1. In these equilibria, no information is transmitted, even though the informed agent's price offers could have been used as a signaling device. However, we also construct an infinite sequence of informative equilibria that approximates the full revelation of information in any state of nature in the limit.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 84 (2012)
Issue (Month): 1 ()
Pages: 393-415

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Handle: RePEc:eee:jeborg:v:84:y:2012:i:1:p:393-415
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