Optimal Delegation in Nash Bargaining

Prof. Dr. Roland Kirstein

No 9001, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: 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.

Keywords: Endogenous threat points; marginal valuation; strategic moves (search for similar items in EconPapers)
JEL-codes: C78 M52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-mic
Date: 2009-01
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