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Sequential Contracting with Multiple Principals

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  • Giacomo Calzolari
  • Alessandro Pavan

Abstract

This paper considers dynamic games in which multiple principals contract sequentially and non-cooperatively with the same agent and provides characterization results useful for applications. Our benchmark model is one of private contracting in which downstream principals do not observe upstream mechanisms, nor the decisions taken in these mechanisms. We show that any equilibrium outcome that can be sustained with any arbitrary strategy space for the principals can also be sustained by restricting the principals to offer excended direct mechanisms. In these mechanisms, the agent first reports his extended type (i.e. his exogenous private information along with the endogenous payoff-relevant decisions contracted upstream), the principal then responds by offering the agent a (possibly degenerate) menu of contracts that are payoff-equivalent for that extended type, and finally the agent selects a contract from this menu and the contract is executed. We also show that characterizing equilibria through extended direct mechanisms is facilitated by the fact that (i) each principal can be restricted to offer a single mechanism; (ii) when the agent's strategy is Markov (i.e. it depends only on payoff-relevant information), each mechanism can be restricted to offer a single contract to each extended type; and (iii) restricting the agent's strategy to be Markov is without loss in the case of deterministic decisions, e.g. when the contracts are deterministic and the agent does not mix over effort. We finally show how the aforementioned results must be adjusted to occommodate alternative assumptions on the observability of upstream histories and/or the sequence of contracting examined in the literature.

Suggested Citation

  • Giacomo Calzolari & Alessandro Pavan, 2007. "Sequential Contracting with Multiple Principals," Discussion Papers 1457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1457
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Han, Seungjin, 2014. "Implicit collusion in non-exclusive contracting under adverse selection," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 85-95.
    2. Graham Mallard, 2014. "Static Common Agency And Political Influence: An Evaluative Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 17-35, February.
    3. Krasteva, Silvana & Yildirim, Huseyin, 2012. "On the role of confidentiality and deadlines in bilateral negotiations," Games and Economic Behavior, Elsevier, vol. 75(2), pages 714-730.
    4. Salvatore Piccolo & Giovanni W. Puopolo & Luis Vasconcelos, 2016. "Non-Exclusive Financial Advice," Review of Finance, European Finance Association, vol. 20(6), pages 2079-2123.
    5. Calzolari, Giacomo & Pavan, Alessandro, 2008. "On the use of menus in sequential common agency," Games and Economic Behavior, Elsevier, vol. 64(1), pages 329-334, September.
    6. Alessandro Acquisti & Curtis Taylor & Liad Wagman, 2016. "The Economics of Privacy," Journal of Economic Literature, American Economic Association, vol. 54(2), pages 442-492, June.
    7. Giacomo Calzolari & Carlo Scarpa, 2016. "Conglomerates And Regulation," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1648-1669, July.
    8. repec:oup:jleorg:v:33:y:2017:i:3:p:475-506. is not listed on IDEAS
    9. Ghosh, Sambuddha & Han, Seungjin, 2012. "Repeated Contracting in Decentralised Markets," Microeconomics.ca working papers seungjin_han-2012-12, Vancouver School of Economics, revised 02 May 2013.
    10. Peters, Michael, 2015. "Reciprocal contracting," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 102-126.
    11. Peters, Michael, 2014. "Competing Mechanisms," Microeconomics.ca working papers michael_peters-2014-7, Vancouver School of Economics, revised 19 Feb 2014.

    More about this item

    Keywords

    Sequential common agency; mechanism design; contracts; endogenous types.;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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