Equilibrium and Renegotiation in Delegation Games

Michele Polo and Piero Tedeschi ()

No 116, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: We propose a general formal structure for symmetric information delegation games that encompasses many existing economic applications in the fields of oligopoly theory, the theory of the firm, strategic trade policy and international political economy. We prove that all individually rational allocations are implementable in delegation games with non separable utility. Secondly, we show that contract renegotiation and non observable contracts have similar effects only in particular cases. We prove that all the equilibria obtained when renegotiation is excluded are implementable as renegotiation proof equilibria, provided that the side transfer technology implies a dead-weight loss increasing in the size of the transfer.

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