Moral Hazard and Bargaining Power

Demougin Dominique and Carsten Helm
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Demougin Dominique: Humboldt University,Berlin, Germany

German Economic Review, 2006, vol. 7, issue 4, 463-470

Abstract: We introduce bargaining power in a moral hazard framework where parties are risk-neutral and the agent is financially constrained. We show that the same contract emerges if the concept of bargaining power is analyzed in either of the following three frameworks: in a standard principal-agent (P-A) framework by varying the agent’s outside opportunity, in an alternating offer game, and in a generalized Nash-bargaining game. However, for sufficiently low levels of the agent’s bargaining power, increasing it marginally does affect the equilibrium in the Nash-bargaining game, but not in the P-A model and in the alternating offer game.

Keywords: Principal-agent model; bargaining power; moral hazard (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (22)

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DOI: 10.1111/j.1468-0475.2006.00130.x

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