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SSRN Electronic Journal
Article . 2008 . Peer-reviewed
Data sources: Crossref
EconStor
Research . 2008
Data sources: EconStor
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Delegation with Incomplete and Renegotiable Contracts

Authors: Levent Koçkesen; Emanuele Gerratana;

Delegation with Incomplete and Renegotiable Contracts

Abstract

It is well known that delegating the play of a game to an agent via incentive contracts may serve as a commitment device and hence provide a strategic advantage. Previous literature has shown that any Nash equilibrium outcome of an extensive-form principals-only game can be supported as a sequential equilibrium outcome of the induced delegation game when contracts are unobservable and non-renegotiable. In other words, in extensive-form games, contracts may affect the equilibrium outcome even when they are unobservable as long as they cannot be renegotiated. In this paper we analyze the equilibrium outcomes of delegation games with unobservable and renegotiable contracts under the assumption that the principal cannot observe every history in the game when played by her agent. This informational assumption implies that contracts are incomplete and we show that such incompleteness restricts the set of equilibrium outcomes to a subset of Nash equilibrium outcomes even without renegotiation. Introducing renegotiation, in general, imposes further constraints and in some games implies that only subgame perfect equilibrium outcomes of the original game can be supported. However, there is a large class of games in which non-subgame perfect equilibrium outcomes of the principals-only game can also be supported, and hence delegation still has a bite even under renegotiable contracts.

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Keywords

L13, ddc:330, Incomplete Contracts, Renegotiation, C72, D86, Strategic Delegation, Strategic Delegation, Incomplete Contracts, Renegotiation., C78, jel: jel:C72, jel: jel:C78, jel: jel:D86, jel: jel:L13

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
0
Average
Average
Average
bronze