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Cooperative interim contract and re-contract: Chandler's M-form firm

Author

Listed:
  • Tatsuro Ichiishi

    (Department of Economics, Ohio State University, Columbus, OH 43210-1172, USA)

  • Murat R. Sertel

    (Center for Economic Design, Bogaziçi University, TURKEY)

Abstract

At an interim stage players possessing only their private information freely communicate with each other to coordinate their strategies. This results in a core strategy, which is interpreted as an equilibrium set of players' alternative type-contingent contract offers to their fellows. From this set of offers each player then chooses an optimal one and engages in some subsequent action, thus possibly revealing some private information to the others. Now with new information thus obtained from each other, the players play a new game to re-write their contract. In all of the optimization and gaming just described, Bayesian incentive compatibility plays a central role. These ideas are formulated within a model of a profit-center game with incomplete information which formally describes interaction of the asymmetrically informed profit-centers in Chandler's multidivisional firm.

Suggested Citation

  • Tatsuro Ichiishi & Murat R. Sertel, 1998. "Cooperative interim contract and re-contract: Chandler's M-form firm," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 523-543.
    • Handle: RePEc:spr:joecth:v:11:y:1998:i:3:p:523-543
    Note: Received: May 17, 1996; revised version: January 14, 1997
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    Cited by:

    1. Dutta, Bhaskar & Vohra, Rajiv, 2005. "Incomplete information, credibility and the core," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 148-165, September.
    2. Krasa, Stefan, 1999. "Unimprovable Allocations in Economies with Incomplete Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 144-168, July.
    3. Forges, Francoise & Minelli, Enrico & Vohra, Rajiv, 2002. "Incentives and the core of an exchange economy: a survey," Journal of Mathematical Economics, Elsevier, vol. 38(1-2), pages 1-41, September.
    4. Krasa, Stefan & Sharma, Tridib & Villamil, Anne P., 2005. "Debt contracts and cooperative improvements," Journal of Mathematical Economics, Elsevier, vol. 41(7), pages 857-874, November.

    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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