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In Defense of Lawyers. Moral Hazard as an Aid to Cooperation

  • Wärneryd, Karl

    ()

    (Department of Economics)

This paper studies strategic delegation in two-player contests for an indivisible prize (as in, e.g. litigation) where one party's probability of winning is determined by the relative investments of both. Even though neither player stands to gain anything from the possibility of one player committing himself to an investment level, both players ex ante prefer compulsory representation by agents (e.g. lawyers) whose efforts are unobservable. Thus this paper points out a role for delegation with moral hazard in facilitating cooperation.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 126.

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Length: 11 pages
Date of creation: Sep 1996
Date of revision:
Publication status: Published in Games and Economic Behavior, 2000, pages 145-158.
Handle: RePEc:hhs:hastef:0126
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The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

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  1. Fershtman, Chaim & Kalai, Ehud, 1997. "Unobserved Delegation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 763-74, November.
  2. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
  3. Michael L. Katz., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Economics Working Papers 91-172, University of California at Berkeley.
  4. Jack Hirshleifer, 1990. "The Technology of Conflict as an Economic Activity," UCLA Economics Working Papers 597, UCLA Department of Economics.
  5. Caillaud, Bernard & Jullien, B & Picard, P, 1995. "Competing Vertical Structures: Precommitment and Renegotiation," Econometrica, Econometric Society, vol. 63(3), pages 621-46, May.
  6. Warneryd, Karl, 1998. "Distributional conflict and jurisdictional organization," Journal of Public Economics, Elsevier, vol. 69(3), pages 435-450, September.
  7. Skaperdas, Stergios, 1996. "Contest Success Functions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-90, February.
  8. Arye L. Hillman & John G. Riley, 1987. "Politically Contestable Rents and Transfers," UCLA Economics Working Papers 452, UCLA Department of Economics.
  9. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  10. Tullock, Gordon, 1975. "On the Efficient Organization of Trials," Kyklos, Wiley Blackwell, vol. 28(4), pages 745-62.
  11. Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991. "Observable Contracts: Strategic Delegation and Cooperation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 551-59, August.
  12. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  13. Skaperdas, Stergios, 1992. "Cooperation, Conflict, and Power in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 82(4), pages 720-39, September.
  14. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
  15. Hirshleifer, Jack, 1995. "Anarchy and Its Breakdown," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 26-52, February.
  16. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  17. Rosenthal, Robert W., 1991. "A note on robustness of equilibria with respect to commitment opportunities," Games and Economic Behavior, Elsevier, vol. 3(2), pages 237-243, May.
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