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Contracting with Third Parties

  • Sandeep Baliga
  • Tomas Sjostrom

In bilateral holdup and moral hazard in teams models, introducing a third party allows implementation of the first best, even if renegotiation is possible. Fines paid to the third party provide incentives for truth-telling and investment. This result holds even if the third party is corruptible, as long as the grand coalition has access to the same contracting technology as any colluding subcoalition. (JEL D86, D82)

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File URL: http://www.kellogg.northwestern.edu/faculty/baliga/htm/third.PDF
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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 784828000000000408.

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Date of creation: 06 Sep 2005
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Handle: RePEc:cla:levrem:784828000000000408
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