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Equilibrium and Renegotiation in Delegation Games

  • Michele Polo
  • Piero Tedeschi

We propose a general formal structure for symmetric information delegation games that encompasses many existing economic applications in the fields of oligopoly theory, the theory of the firm, strategic trade policy and international political economy. We prove that all individually rational allocations are implementable in delegation games with non separable utility. Secondly, we show that contract renegotiation and non observable contracts have similar effects only in particular cases. We prove that all the equilibria obtained when renegotiation is excluded are implementable as renegotiation proof equilibria, provided that the side transfer technology implies a dead-weight loss increasing in the size of the transfer.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 116.

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Handle: RePEc:igi:igierp:116
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  1. Persson, Torsten & Tabellini, Guido, 1991. "The Politics of 1992: Fiscal Policy and European Integration," CEPR Discussion Papers 501, C.E.P.R. Discussion Papers.
  2. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  3. Barbara J. Spencer & James A. Brander, 1982. "International R&D Rivalry and Industrial Strategy," Working Papers 518, Queen's University, Department of Economics.
  4. Laussel, D., 1990. "Strategic Commercial Policy Revisited: A Supply Function Equilibrium Model," G.R.E.Q.A.M. 90a05, Universite Aix-Marseille III.
  5. Chaim Fershtman & Kenneth L. Judd & Ehud Kalai, 1990. "Observable Contracts: Strategic Delegation and Cooperation," Discussion Papers 879, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  7. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  8. Eaton, Jonathan & Grossman, Gene M, 1986. "Optimal Trade and Industrial Policy under Oligopoly," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 383-406, May.
  9. Caillaud, Bernard & Jullien, Bruno & Picard, Pierre, 1993. "Competing vertical structures : precommitment and renegotiation. revised version," CEPREMAP Working Papers (Couverture Orange) 9304, CEPREMAP.
  10. Michael L. Katz, 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 307-328, Autumn.
  11. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
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