Bargaining with Noisy Delegation

Dallas Burtraw

RAND Journal of Economics, 1993, vol. 24, issue 1, 40-57

Abstract: Principals delegate to an agent in the context of the Nash bargaining model, but communicate instructions to their agents imperfectly. Numerical methods are used to find a unique equilibrium in the principals' strategies. Agents fail to agree with a positive probability, invoking a secondary mechanism for the resolution of disputes such as arbitration. Comparative statics are informative. The risk sensitivity of the Nash bargaining solution is mitigated but not eliminated. As uncertainty goes to zero, a stable unique limiting equilibrium is identified from the set of multiple equilibria identified in a model in which principals delegate without trembles.

Date: 1993
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