IDEAS home Printed from https://ideas.repec.org/p/dar/wpaper/33630.html
   My bibliography  Save this paper

Moral Hazard and Bargaining Power

Author

Listed:
  • Demougin, Dominique
  • Helm, Carsten

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.

Suggested Citation

  • Demougin, Dominique & Helm, Carsten, 2006. "Moral Hazard and Bargaining Power," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 33630, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:33630
    DOI: 10.1111/j.1468-0475.2006.00130.x
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/33630/
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1111/j.1468-0475.2006.00130.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1468-0475.2006.00130.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    2. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    3. Dieter Balkenborg, 2001. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk: Comment," American Economic Review, American Economic Association, vol. 91(3), pages 731-738, June.
    4. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, January.
    5. Pitchford, Rohan, 1998. "Moral hazard and limited liability: The real effects of contract bargaining," Economics Letters, Elsevier, vol. 61(2), pages 251-259, November.
    6. Demougin, Dominique & Fluet, Claude, 2001. "Monitoring versus incentives," European Economic Review, Elsevier, vol. 45(9), pages 1741-1764, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sanxi Li & Hailin Sun & Jianye Yan & Xundong Yin, 2015. "Risk aversion in the Nash bargaining problem with uncertainty," Journal of Economics, Springer, vol. 115(3), pages 257-274, July.
    2. Gick, Wolfgang, 2015. "A Theory of Delegated Contracting," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113069, Verein für Socialpolitik / German Economic Association.
    3. Helm, Carsten, 2008. "How liable should an exporter be?: The case of trade in hazardous goods," International Review of Law and Economics, Elsevier, vol. 28(4), pages 263-271, December.
    4. Demougin, Dominique M. & Helm, Carsten, 2008. "Incentive contracts and efficient unemployment benefits," Darmstadt Discussion Papers in Economics 191, Darmstadt University of Technology, Department of Law and Economics.
    5. Bruno Deffains & Dominique Demougin, 2023. "Capitation taxes and the regulation of professional services," European Journal of Law and Economics, Springer, vol. 55(2), pages 167-193, April.
    6. Michela Cella & Federico Etro, 2016. "Contract competition between hierarchies, managerial compensation and imperfectly correlated shocks," Journal of Economics, Springer, vol. 118(3), pages 193-218, July.
    7. Itza Tlaloc Quetzalcoatl Curiel-Cabral & Sonia Giannatale & Giselle Labrador-Badía, 2024. "Risk Aversion, Reservation Utility and Bargaining Power: An Evolutionary Algorithm Approximation of Incentive Contracts," Computational Economics, Springer;Society for Computational Economics, vol. 63(2), pages 477-511, February.
    8. repec:zbw:hohpro:348 is not listed on IDEAS
    9. Telalagic, S., 2012. "Domestic Production as a Source of Marital Power: Theory and Evidence from Malawi," Cambridge Working Papers in Economics 1243, Faculty of Economics, University of Cambridge.
    10. Gan, Liu & Luo, Pengfei & Yang, Zhaojun, 2016. "Real option, debt maturity and equity default swaps under negotiation," Finance Research Letters, Elsevier, vol. 18(C), pages 278-284.
    11. repec:old:wpaper:348 is not listed on IDEAS
    12. Alexander Zimper, 2013. "Optimal Liquidity Provision Through a Demand Deposit Scheme: The Jacklin Critique Revisited," German Economic Review, Verein für Socialpolitik, vol. 14(1), pages 89-107, February.
    13. Itza Curiel & Sonia Di Giannatale & Juan Herrera & Katya Rodríguez, 2012. "Pareto Frontier of a Dynamic Principal–Agent Model with Discrete Actions: An Evolutionary Multi-Objective Approach," Computational Economics, Springer;Society for Computational Economics, vol. 40(4), pages 415-443, December.
    14. Dittrich, Marcus & Städter, Silvio, 2015. "Moral hazard and bargaining over incentive contracts," Research in Economics, Elsevier, vol. 69(1), pages 75-85.
    15. Buso, Marco & Moretto, Michele & Zormpas, Dimitrios, 2021. "Excess returns in Public-Private Partnerships: Do governments pay too much?," Economic Modelling, Elsevier, vol. 102(C).
    16. Bental, Benjamin & Demougin, Dominique, 2010. "Declining labor shares and bargaining power: An institutional explanation," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 443-456, March.
    17. repec:dar:wpaper:35490 is not listed on IDEAS
    18. Yanbin Chen & Pu Chen & Yumei Guo & Sanxi Li & Dongmin Yao, 2019. "Bargaining to Design Contracts under Moral Hazard," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(4), pages 714-735.
    19. Demougin, Dominique & Helm, Carsten, 2023. "Overwhelmed by routine tasks: A multitasking principal agent perspective," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 654-669.
    20. Benjamin Bental & Bruno Deffains & Dominique Demougin, 2020. "Interpreting contracts: the purposive approach and non-comprehensive incentive contracts," European Journal of Law and Economics, Springer, vol. 50(2), pages 241-265, October.
    21. Kragl, Jenny & Gogova, Martina, 2013. "Wage Bargaining when Workers Have Fairness Concerns," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79790, Verein für Socialpolitik / German Economic Association.
    22. Carsten Helm & Dominique Demougin, 2012. "Incentive Contracts and Efficient Unemployment Benefits in a Globalized World," Working Papers V-348-12, University of Oldenburg, Department of Economics, revised Aug 2012.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Demougin, Dominique & Helm, Carsten, 2023. "Overwhelmed by routine tasks: A multitasking principal agent perspective," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 654-669.
    2. repec:bla:germec:v:7:y:2006:i::p:463-470 is not listed on IDEAS
    3. Demougin, Dominique M. & Helm, Carsten, 2008. "Incentive contracts and efficient unemployment benefits," Darmstadt Discussion Papers in Economics 191, Darmstadt University of Technology, Department of Law and Economics.
    4. Thiele, Veikko, 2007. "Performance measurement in multi-task agencies," Research in Economics, Elsevier, vol. 61(3), pages 148-163, September.
    5. Bruno Deffains & Dominique Demougin, 2023. "Capitation taxes and the regulation of professional services," European Journal of Law and Economics, Springer, vol. 55(2), pages 167-193, April.
    6. Helm, Carsten, 2008. "How liable should an exporter be?: The case of trade in hazardous goods," International Review of Law and Economics, Elsevier, vol. 28(4), pages 263-271, December.
    7. repec:zbw:hohpro:348 is not listed on IDEAS
    8. Bental, Benjamin & Demougin, Dominique M., 2006. "Institutions, bargaining power and labor shares," SFB 649 Discussion Papers 2006-009, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    9. repec:old:wpaper:348 is not listed on IDEAS
    10. repec:hum:wpaper:sfb649dp2006-009 is not listed on IDEAS
    11. repec:dar:wpaper:35490 is not listed on IDEAS
    12. Carsten Helm & Dominique Demougin, 2012. "Incentive Contracts and Efficient Unemployment Benefits in a Globalized World," Working Papers V-348-12, University of Oldenburg, Department of Economics, revised Aug 2012.
    13. Manzini, Paola & Mariotti, Marco, 2005. "Alliances and negotiations," Journal of Economic Theory, Elsevier, vol. 121(1), pages 128-141, March.
    14. Mondello, Gérard, 2012. "La responsabilité environnementale des prêteurs : difficultés juridiques et ensemble des possibles," L'Actualité Economique, Société Canadienne de Science Economique, vol. 88(2), pages 257-278, Juin.
    15. Dominique Demougin & Claude Fluet & Carsten Helm, 2006. "Output and wages with inequality averse agents," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(2), pages 399-413, May.
    16. Joalland, Olivier & Pereau, Jean-Christophe & Rambonilaza, Tina, 2019. "Bargaining local compensation payments for the installation of new power transmission lines," Energy Economics, Elsevier, vol. 80(C), pages 75-85.
    17. Gerald Schneider & Daniel Finke & Stefanie Bailer, 2010. "Bargaining Power in the European Union: An Evaluation of Competing Game‐Theoretic Models," Political Studies, Political Studies Association, vol. 58(1), pages 85-103, February.
    18. Montero, M.P., 2002. "Two-Stage Bargaining with Reversible Coalitions : The Case of Apex Games," Other publications TiSEM 7dba0283-bc13-4f2c-8f5e-5, Tilburg University, School of Economics and Management.
    19. Venkat Venkatasubramanian & Yu Luo, 2018. "How much income inequality is fair? Nash bargaining solution and its connection to entropy," Papers 1806.05262, arXiv.org.
    20. Ansink, Erik & Weikard, Hans-Peter, 2009. "Contested water rights," European Journal of Political Economy, Elsevier, vol. 25(2), pages 247-260, June.
    21. Björn Brügemann & Pieter Gautier & Guido Menzio, 2019. "Intra Firm Bargaining and Shapley Values," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(2), pages 564-592.
    22. Benjamin Bental & Dominique Demougin, 2006. "Incentive Contracts And Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 1033-1055, August.
    23. Shady S. Atallah & Miguel I. Gómez & Jon M. Conrad, 2017. "Specification of Spatial-Dynamic Externalities and Implications for Strategic Behavior in Disease Control," Land Economics, University of Wisconsin Press, vol. 93(2), pages 209-229.
    24. Kräkel, Matthias & Schöttner, Anja, 2008. "Relative Performance Pay, Bonuses, and Job-Promotion Tournaments," IZA Discussion Papers 3702, Institute of Labor Economics (IZA).
    25. Donni, Olivier, 2014. "Over-investment in marriage-specific capital," Mathematical Social Sciences, Elsevier, vol. 67(C), pages 34-43.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dar:wpaper:33630. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dekanatssekretariat (email available below). General contact details of provider: https://edirc.repec.org/data/ivthdde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.