A Theory of Authority in Bilateral Contracting

Stefan Ambec

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Two players are involved in a joint project during which a decision must be reached. Each player has private information about future profits. Authority gives one player the right to decide first in a pre-defined set of alternatives. In this framework, I show that (partial) authority should be assigned to the player who gets the highest share of the total surplus. This organizational architecture replicates the performance of an optimal revelation mechanism without the cost of hiring a third party acting as a principal.

Keywords: Contract; asymmetric information; control rights; limited liability; hidden information (search for similar items in EconPapers)
JEL-codes: D23 D82 G32 L22 (search for similar items in EconPapers)
Date: 2003-06-01
New Economics Papers: this item is included in nep-cfn
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Related works:
Working Paper: A theory of authority in bilateral contracting (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:102

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