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A note on the take-it-or-leave-it bargaining procedure with double moral hazard and risk neutrality

Author

Listed:
  • Alessandro Citanna

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this note we study a take-it-or-leave-it bargaining procedure between two risk neutral individuals engaged in the joint stochastic production of a commodity. Each individual has to exert effort, that is, to provide a one-dimensional input which is unobserved to the other individual. The output-contingent sharing rule is constrained to lead to nonnegative consumption for both individuals, a limited liability constraint. The individuals enter joint production in one of two possible occupations, or tasks, the p-agent and the a-agent, which differ in their incentive intensity. Hence, incentives are asymmetric. The p-agent makes a take-it-or-leave-it offer to the a-agent, and has therefore all the contractual power, modulo providing the a-agent an exogenously given reservation utility.

Suggested Citation

  • Alessandro Citanna, 2003. "A note on the take-it-or-leave-it bargaining procedure with double moral hazard and risk neutrality," Working Papers hal-00593380, HAL.
    • Handle: RePEc:hal:wpaper:hal-00593380
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    Keywords

    contract theory; bargaining theory;

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