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Third-Party Budget Breakers and Side Contracting in Team Production

Author

Listed:
  • Jesse Bull

    (Florida International University)

Abstract

In a team production problem with unverifiable effort, budget breaking is essential to implementing efficient levels of effort. This short paper considers the use of a third party, who does not exert effort, in a setting with general contracts that can include message games, as a way to remove resources from the team. I show that if side contracting can influence behavior in a message game in the original contract, the addition of the third party is not helpful. My view of side contracting complements that of Baliga and Sjostrom (2009) in exploring the nature of side contracting that is needed in order for the third party to be useful for budget breaking.

Suggested Citation

  • Jesse Bull, 2012. "Third-Party Budget Breakers and Side Contracting in Team Production," Economics Bulletin, AccessEcon, vol. 32(3), pages 2606-2614.
    • Handle: RePEc:ebl:ecbull:eb-12-00196
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I3-P249.pdf
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    References listed on IDEAS

    as
    1. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    2. Bull, Jesse & Watson, Joel, 2004. "Evidence disclosure and verifiability," Journal of Economic Theory, Elsevier, vol. 118(1), pages 1-31, September.
    3. Sandeep Baliga & Tomas Sjöström, 2009. "Contracting with Third Parties," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 75-100, February.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Buzard, Kristy & ,, 2012. "Contract, renegotiation, and hold up: Results on the technology of trade and investment," Theoretical Economics, Econometric Society, vol. 7(2), May.
    2. Watson, Joel & Buzard, Kristy, 2009. "Contract, Renegotiation, and Hold Up: General Results on the Technology of Trade and Investment," University of California at San Diego, Economics Working Paper Series qt3923q7kz, Department of Economics, UC San Diego.
    3. Watson, Joel & Wignall, Chris, 2009. "Hold-Up and Durable Trading Opportunities," University of California at San Diego, Economics Working Paper Series qt8p8284wg, Department of Economics, UC San Diego.

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    More about this item

    Keywords

    side contracting; team production; budget breaking; collusion;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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