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Optimal Delegation in Nash Bargaining

  • Roland Kirstein


    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

When appointing a representative in negotiations, the principal can o er his agent a offer contract that promises a percentage of the bargaining result, and a bonus payment result (or penalty) if bargaining fails. Conventional wisdom of contract theory seems to suggest that the share should be as great as possible to provide proper incentives for a risk-neutral agent, while the bonus should be small or even negative. Drawing on the symmetric Nash bargaining solution, this paper argues that the optimal share is rather small, whereas the optimal bonus is rather large.

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Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 09001.

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Length: 9 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:mag:wpaper:09001
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  1. Michael L. Katz., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Economics Working Papers 91-172, University of California at Berkeley.
  2. Steven D. Levitt & Chad Syverson, 2005. "Market Distortions when Agents are Better Informed: The Value of Information in Real Estate Transactions," NBER Working Papers 11053, National Bureau of Economic Research, Inc.
  3. Roland Kirstein & Neil Rickman, 2004. ""Third Party Contingency" Contracts in Settlement and Litigation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(4), pages 555-, December.
  4. Helmut Bester & Joszef Sakovics, . "Delegated Bargaining and Renegotiation," Papers 007, Departmental Working Papers.
  5. Hongbin Cai & Walter Cont, 2004. "Agency Problems and Commitment in Delegated Bargaining," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 703-729, December.
  6. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  7. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  8. Kirstein, Roland & Gerhard, Hans, 2005. "The "Rainmaker's Dilemma": Bad Debt Loss Insurance in Settlement and Litigation," CSLE Discussion Paper Series 2005-02, Saarland University, CSLE - Center for the Study of Law and Economics.
  9. Jones, Stephen R. G., 1989. "Have your lawyer call my lawyer : Bilateral delegation in bargaining situations," Journal of Economic Behavior & Organization, Elsevier, vol. 11(2), pages 159-174, March.
  10. Mathias Dewatripont, 1988. "Commitment through renegotiation-proof contacts with third parties," ULB Institutional Repository 2013/9569, ULB -- Universite Libre de Bruxelles.
  11. Binmore, Ken & Shaked, Avner & Sutton, John, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 753-70, November.
  12. Burtraw, Dallas, 1992. "Strategic delegation in bargaining," Economics Letters, Elsevier, vol. 38(2), pages 181-185, February.
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