Observable and Renegotiable Contracts as Commitments to Cooperate
We study an example of strategic delegation in Cournot duopoly and show that if contracts are both observable and renegotiable before becoming common knowledge at the outset of the delegated game, the strategic value of contracts is preserved, but the set of equilibria is greatly enlarged. Managerial contracts can be used by owners to co-ordinate on any product market equilibrium allowing them to get a level of profit at least as large as the profit obtainable in the strategic delegation equilibrium without renegotiation, which is used as a threat point. The equilibrium set includes joint profit maximisation.
|Date of creation:||2008|
|Contact details of provider:|| Postal: Via Necchi n. 5 - 20123 Milano|
Phone: 02 7234.3788
Fax: 02 7234.3789
Web page: http://dipartimenti.unicatt.it/economia_internazionale_istituzioni_sviluppo
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Caillaud, Bernard & Jullien, B & Picard, P, 1995.
"Competing Vertical Structures: Precommitment and Renegotiation,"
Econometric Society, vol. 63(3), pages 621-46, May.
- Caillaud Bernard & Jullien Bruno & Picard Pierre, 1991. "Competing vertical structures : precommitment and renegotiation," CEPREMAP Working Papers (Couverture Orange) 9125, CEPREMAP.
- Levent Koçkesen & Efe A. Ok, 2004.
"Strategic Delegation By Unobservable Incentive Contracts,"
Review of Economic Studies,
Oxford University Press, vol. 71(2), pages 397-424.
- Kockesen, L. & Ok, E., 1999. "Strategic Delegation by Unobservable Incentive Contracts," Working Papers 99-11, C.V. Starr Center for Applied Economics, New York University.
- James A. Brander & Barbara J. Spencer, 1984.
"Export Subsidies and International Market Share Rivalry,"
NBER Working Papers
1464, National Bureau of Economic Research, Inc.
- Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
- Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 11691189-11.
- Fershtman, Chaim & Judd, Kenneth L, 1987.
"Equilibrium Incentives in Oligopoly,"
American Economic Review,
American Economic Association, vol. 77(5), pages 927-940, December.
- Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
- Michael L. Katz, 2006. "Observable Contracts as Commitments: Interdependent Contracts and Moral Hazard," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(3), pages 685-706, 09.
When requesting a correction, please mention this item's handle: RePEc:dis:wpaper:dis0801. 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: (Teodora Erika Uberti)
If references are entirely missing, you can add them using this form.