Contracting with Third Parties

Sandeep Baliga () and Tomas Sjostrom

American Economic Journal: Microeconomics, 2009, vol. 1, issue 1, pages 75-100

Abstract: In bilateral holdup and moral hazard in teams models, introducing a third party allows implementation of the first best, even if renegotiation is possible. Fines paid to the third party provide incentives for truth-telling and investment. This result holds even if the third party is corruptible, as long as the grand coalition has access to the same contracting technology as any colluding subcoalition. (JEL D86, D82)

Date: 2009
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Working Paper: Contracting with Third Parties (2005)
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