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Coordination and bargaining power in contracting with externalities

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  • Galasso, Alberto

Abstract

Building on Genicot and Ray [G. Genicot, D. Ray, Contracts and externalities: How things fall apart, J. Econ. Theory 131 (2006) 71-100] we develop a model of non-cooperative bargaining that combines the two main approaches in the literature of contracting with externalities: the offer game (in which the principal makes simultaneous offers to the agents) and the bidding game (in which the agents make simultaneous offers to the principal). Allowing for agent coordination, we show that the outcome of our bargaining procedure may differ remarkably from those of the offer and the bidding games. In particular, we find that bargaining can break agents' coordination and that the principal's payoff can be decreasing in his own bargaining power.

Suggested Citation

  • Galasso, Alberto, 2008. "Coordination and bargaining power in contracting with externalities," Journal of Economic Theory, Elsevier, vol. 143(1), pages 558-570, November.
  • Handle: RePEc:eee:jetheo:v:143:y:2008:i:1:p:558-570
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    References listed on IDEAS

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    Cited by:

    1. Currarini, Sergio & Marchiori, Carmen & Tavoni, Alessandro, 2016. "Network economics and the environment: insights and perspectives," LSE Research Online Documents on Economics 63951, London School of Economics and Political Science, LSE Library.
    2. Sergio Currarini & Carmen Marchiori & Alessandro Tavoni, 2016. "Network Economics and the Environment: Insights and Perspectives," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 159-189, September.

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