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Selling authority

Wooyoung Lim ()

Journal of Economic Behavior & Organization, 2012, vol. 84, issue 1, 393-415

Abstract: This paper examines the bargaining over authority in principal–agent relationships in which a non-contractible decision must be made but decision rights are contractible and transferrable. An informed but self-interested agent makes a price offer to buy decision-making authority from an uninformed principal, who then decides to either accept or reject the offer. No matter how large the difference is between the parties’ preferences, there exists a continuum of perfect Bayesian equilibria in which authority is transferred with a probability of 1. In these equilibria, no information is transmitted, even though the informed agent's price offers could have been used as a signaling device. However, we also construct an infinite sequence of informative equilibria that approximates the full revelation of information in any state of nature in the limit.

Keywords: Transfer of authority; Monetary transfers; Information transmission (search for similar items in EconPapers)
JEL-codes: D23 D83 L24 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:84:y:2012:i:1:p:393-415

DOI: 10.1016/j.jebo.2012.04.016

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