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A note on the take-it-or-leave-it bargaining procedure with double moral hazard and risk neutrality

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  • CITANNA, Alessandro

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Abstract

In this note we study a take-it-or-leave-it bargaining procedure between two risk neutral individuals engaged in the joint stochastic production of a commodity. Each individual has to exert effort, that is, to provide a one-dimensional input which is unobserved to the other individual. The output-contingent sharing rule is constrained to lead to nonnegative consumption for both individuals, a limited liability constraint. The individuals enter joint production in one of two possible occupations, or tasks, the p-agent and the a-agent, which differ in their incentive intensity. Hence, incentives are asymmetric. The p-agent makes a take-it-or-leave-it offer to the a-agent, and has therefore all the contractual power, modulo providing the a-agent an exogenously given reservation utility.

Suggested Citation

  • CITANNA, Alessandro, 2003. "A note on the take-it-or-leave-it bargaining procedure with double moral hazard and risk neutrality," Les Cahiers de Recherche 789, HEC Paris.
  • Handle: RePEc:ebg:heccah:0789
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    Keywords

    contract theory; bargaining theory;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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