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Third-Party Budget Breakers and Side-Contracting in Team Production

  • Jesse Bull

    ()

    (Department of Economics, Florida International University)

In a team production problem with unverifiable effort, budget breaking is essential to implementing efficient levels of effort. This short paper considers the use of a third party, who does not exert effort, in a setting with general contracts that can include message games, as a way to remove resources from the team. We show that if side contracting can influence behavior in a message game in the original contract, the addition of the third party is not helpful. Additionally, we compare our view of side contracting with that of Baliga and Sjostrom (2009) to explore the nature of side contracting that is needed in order for the third party to be useful for budget breaking.

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File URL: http://casgroup.fiu.edu/pages/docs/1569/1280267719_09-09.pdf
File Function: Revised version, 2009
Download Restriction: no

Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0909.

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Length: 13 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:fiu:wpaper:0909
Contact details of provider: Postal: Miami, FL 33199
Phone: (305) 348-2316
Fax: (305) 348-1524
Web page: http://casgroup.fiu.edu/Economics/

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  1. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Bull, Jesse & Watson, Joel, 2004. "Evidence disclosure and verifiability," Journal of Economic Theory, Elsevier, vol. 118(1), pages 1-31, September.
  3. Sandeep Baliga & Tomas Sjostrom, 2005. "Contracting with Third Parties," Levine's Bibliography 784828000000000408, UCLA Department of Economics.
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