Mediators and Mechanism Design: Why Firms Hire Consultants

Kay Mitusch () and Roland Strausz ()

Departmental Working Papers from Freie Universität, Fachbereich Wirtschaftswissenschaften

Abstract: This paper offers a new type of explanation for economic institutions as playing the role of mediators in the sense of Myerson (1985) to facilitate communication in contracting settings with ex ante asymmetric information and limited commitment. It derives necessary and sufficient conditions under which mediation is strictly helpful and provides a straightforward, yet general intuition for this result. As an application of our idea we explain the widely observed use of consultants during the restructure of firms.

Keywords: mechanism design; communication equilibrium; limited commitment (search for similar items in EconPapers)
JEL-codes: D82 C72 (search for similar items in EconPapers)
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