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Moral Hazard and Bargaining Power

Demougin, Dominique and Helm, Carsten :
Moral Hazard and Bargaining Power.
[Online-Edition: http://dx.doi.org/10.1111/j.1468-0475.2006.00130.x]
In: German Economic Review, 7 (4) pp. 463-470.
[Article] , (2006)

Official URL: http://dx.doi.org/10.1111/j.1468-0475.2006.00130.x

Abstract

Abstract. We introduce bargaining power in a moral hazard framework where parties are risk-neutral and the agent is financially constrained. We show that the same contract emerges if the concept of bargaining power is analyzed in either of the following three frameworks: in a standard principal2013agent (P2013A) framework by varying the agent's outside opportunity, in an alternating offer game, and in a generalized Nash-bargaining game. However, for sufficiently low levels of the agent's bargaining power, increasing it marginally does affect the equilibrium in the Nash-bargaining game, but not in the P2013A model and in the alternating offer game.

Item Type: Article
Erschienen: 2006
Creators: Demougin, Dominique and Helm, Carsten
Title: Moral Hazard and Bargaining Power
Language: English
Abstract:

Abstract. We introduce bargaining power in a moral hazard framework where parties are risk-neutral and the agent is financially constrained. We show that the same contract emerges if the concept of bargaining power is analyzed in either of the following three frameworks: in a standard principal2013agent (P2013A) framework by varying the agent's outside opportunity, in an alternating offer game, and in a generalized Nash-bargaining game. However, for sufficiently low levels of the agent's bargaining power, increasing it marginally does affect the equilibrium in the Nash-bargaining game, but not in the P2013A model and in the alternating offer game.

Journal or Publication Title: German Economic Review
Volume: 7
Number: 4
Divisions: 01 Law and Economics > Volkswirtschaftliche Fachgebiete > Angewandte Mikroökonomik und Institutionenökonomik
01 Law and Economics > Volkswirtschaftliche Fachgebiete
01 Law and Economics
Date Deposited: 28 Apr 2009 14:05
Official URL: http://dx.doi.org/10.1111/j.1468-0475.2006.00130.x
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