IDEAS home Printed from https://ideas.repec.org/a/eee/mateco/v48y2012i2p98-106.html
   My bibliography  Save this article

Bargaining over incentive contracts

Author

Listed:
  • Yao, Zhiyong

Abstract

The incentive contract theory assumes that the principal holds all of the bargaining power. By introducing alternating offers and strategic delay into the nonlinear pricing model, we relax this assumption and analyze an infinite-horizon contract bargaining game. We attain either the “sequential separating equilibrium” or the “simultaneous separating equilibrium”, depending on the parameter values. We prove the existence and the uniqueness of the equilibrium, and claim that multidimensionality and strategic delay can help resolve the multiple equilibria problem of bargaining theory. When the time between offers approaches zero, either quantity distortion or delay persists.

Suggested Citation

  • Yao, Zhiyong, 2012. "Bargaining over incentive contracts," Journal of Mathematical Economics, Elsevier, vol. 48(2), pages 98-106.
  • Handle: RePEc:eee:mateco:v:48:y:2012:i:2:p:98-106
    DOI: 10.1016/j.jmateco.2012.01.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304406812000055
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Myerson, Roger B, 1983. "Mechanism Design by an Informed Principal," Econometrica, Econometric Society, vol. 51(6), pages 1767-1797, November.
    2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    3. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 53(2), pages 236-260, April.
    4. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, January.
    5. Grossman, Sanford J. & Perry, Motty, 1986. "Perfect sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 39(1), pages 97-119, June.
    6. Inderst, Roman, 2002. "Contract design and bargaining power," Economics Letters, Elsevier, vol. 74(2), pages 171-176, January.
    7. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, April.
    8. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-359, March.
    9. Ausubel, Lawrence M. & Cramton, Peter & Deneckere, Raymond J., 2002. "Bargaining with incomplete information," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 50, pages 1897-1945 Elsevier.
    10. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    11. Peter C. Cramton, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 205-225.
    12. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
    13. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
    14. Binmore, Ken & Osborne, Martin J. & Rubinstein, Ariel, 1992. "Noncooperative models of bargaining," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 7, pages 179-225 Elsevier.
    15. Anat R. Admati & Motty Perry, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 345-364.
    16. Roman Inderst, 2003. "Alternating-offer bargaining over menus under incomplete information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(2), pages 419-429, September.
    17. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    18. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
    19. Sen, Arijit, 2000. "Multidimensional Bargaining under Asymmetric Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 425-450, May.
    20. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-1037, September.
    21. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Li Sanxi & Yao Dongmin & Xiao Hao, 2013. "Contract Bargaining with a Risk-Averse Agent," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 13(1), pages 285-301, November.
    3. Palermo, Alberto, 2016. "Hold-up in vertical hierarchies with adverse selection," Economics Letters, Elsevier, vol. 148(C), pages 91-95.
    4. Sen, Arijit, 2000. "Multidimensional Bargaining under Asymmetric Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 425-450, May.
    5. Zhiyong Yao, 2015. "Immediate Settlement Or Enduring A Strike: The Choice Of Signals," Bulletin of Economic Research, Wiley Blackwell, vol. 67(4), pages 324-335, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:mateco:v:48:y:2012:i:2:p:98-106. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jmateco .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.