Delegation with Incomplete and Renegotiable Contracts
It is well known that delegating the play of a game to an agent via incentive contractsmay serveas a commitment device and hence provide a strategic advantage. Previous literature has shown that any Nash equilibrium outcome of an extensive-form principals-only game can be supported as a sequential equilibrium outcome of the induced delegation game when contracts are unobservable and non-renegotiable. In this paper we characterize equilibriumoutcomes of delegation games with unobservable and incomplete contractswith andwithout renegotiation opportunities under the assumption that the principal cannot observe every history in the game when played by her agent. We show that incompleteness of the contracts restricts the set of outcomes to a subset of Nash equilibrium outcomes and renegotiation imposes further constraints. Yet, there is a large class of games in which non-subgame perfect equilibrium outcomes of the principals-only game can be supported even with renegotiable contracts, and hence delegation still has a bite.
|Date of creation:||Apr 2008|
|Contact details of provider:|| Postal: Rumelifeneri Yolu, Sarıyer, 34450 İstanbul|
Web page: http://erf.ku.edu.tr
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.:
- 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.
- Michael L. Katz., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Economics Working Papers 91-172, University of California at Berkeley.
- Katz, Michael L., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Department of Economics, Working Paper Series qt79b870w0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Bensaid, Bernard & Gary-Bobo, Robert J, 1993.
"Commitment Value of Contracts under Renegotiation Constraints,"
Econometric Society, vol. 61(6), pages 1423-1429, November.
- Bensaid, B. & Gary-Bobo, R. J., "undated". "Commitment value of contracts under renegotiation constraints," CORE Discussion Papers RP 1107, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Bensaid, B. & Gary-Bobo, R., 1993.
"On the Commitment Value of Contracts Under Renegotiation Constraints,"
9302, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
- Bensaid, B. & Gary-Bobo, J., 1991. "On the commitment value of contracts under renegotiation constraints," CORE Discussion Papers 1991002, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- In-Koo Cho & David M. Kreps, 1987.
"Signaling Games and Stable Equilibria,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 102(2), pages 179-221.
- Caillaud Bernard & Jullien Bruno & Picard Pierre, 1991.
"Competing vertical structures : precommitment and renegotiation,"
CEPREMAP Working Papers (Couverture Orange)
- Caillaud, Bernard & Jullien, B & Picard, P, 1995. "Competing Vertical Structures: Precommitment and Renegotiation," Econometrica, Econometric Society, vol. 63(3), pages 621-646, May.
- 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 551-559, August.
- 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.
- Persson, Torsten & Tabellini, Guido, 1993. "Designing institutions for monetary stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 53-84, December.
- Paul Beaudry & Michel Poitevin, 1995.
"Contract Renegotiation: A Simple Framework and Implications for Organization Theory,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 28(2), pages 302-335, May.
- Beaudry, P. & Poitevin, M., 1993. "Contract Renegotiation: A Simple Framework and Implications for Organization Theory," Cahiers de recherche 9332, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- 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.
- Fershtman, Chaim & Judd, Kenneth L, 1987.
"Equilibrium Incentives in Oligopoly,"
American Economic Review,
American Economic Association, vol. 77(5), pages 927-940, December.
- Polo, Michele & Tedeschi, Piero, 2000. "Delegation games and side-contracting," Research in Economics, Elsevier, vol. 54(1), pages 101-116, March.
- Konstantine Gatsios & Larry Karp, 1991. "Delegation Games in Customs Unions," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 391-397.
- Levent Koçkesen, 2007. "Unobservable Contracts as Precommitments," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 31(3), pages 539-552, June.
- 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.
- Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 53(2), pages 236-260, April.
When requesting a correction, please mention this item's handle: RePEc:koc:wpaper:0803.. 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: (Sumru Oz)
If references are entirely missing, you can add them using this form.