Bargaining over incentive contracts

Zhiyong Yao

Journal of Mathematical Economics, 2012, vol. 48, issue 2, pages 98-106

Abstract: The incentive contract theory assumes that the principal holds all of the bargaining power. By introducing alternating offers and strategic delay into the nonlinear pricing model, we relax this assumption and analyze an infinite-horizon contract bargaining game. We attain either the “sequential separating equilibrium” or the “simultaneous separating equilibrium”, depending on the parameter values. We prove the existence and the uniqueness of the equilibrium, and claim that multidimensionality and strategic delay can help resolve the multiple equilibria problem of bargaining theory. When the time between offers approaches zero, either quantity distortion or delay persists.

Keywords: Multidimensional bargaining; Incentive contracts; Strategic delay; Alternating offers (search for similar items in EconPapers)
Date: 2012
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Persistent link: http://EconPapers.repec.org/RePEc:eee:mateco:v:48:y:2012:i:2:p:98-106

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