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Bargaining over incentive contracts

  • Yao, Zhiyong

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.

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Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 48 (2012)
Issue (Month): 2 ()
Pages: 98-106

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Handle: RePEc:eee:mateco:v:48:y:2012:i:2:p:98-106
Contact details of provider: Web page: http://www.elsevier.com/locate/jmateco

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