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Selling authority

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  • Lim, Wooyoung

Abstract

This paper examines the bargaining over authority in principal–agent relationships in which a non-contractible decision must be made but decision rights are contractible and transferrable. An informed but self-interested agent makes a price offer to buy decision-making authority from an uninformed principal, who then decides to either accept or reject the offer. No matter how large the difference is between the parties’ preferences, there exists a continuum of perfect Bayesian equilibria in which authority is transferred with a probability of 1. In these equilibria, no information is transmitted, even though the informed agent's price offers could have been used as a signaling device. However, we also construct an infinite sequence of informative equilibria that approximates the full revelation of information in any state of nature in the limit.

Suggested Citation

  • Lim, Wooyoung, 2012. "Selling authority," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 393-415.
    • Handle: RePEc:eee:jeborg:v:84:y:2012:i:1:p:393-415
    DOI: 10.1016/j.jebo.2012.04.016
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    References listed on IDEAS

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    Cited by:

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    3. Dementiev, Andrei & Loboyko, Anfisa, 2014. "Trusting partnerships in a regulatory game: The case of suburban railway transport in Russia," Research in Transportation Economics, Elsevier, vol. 48(C), pages 209-220.

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    More about this item

    Keywords

    Transfer of authority; Monetary transfers; Information transmission;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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