Agency Problems and Commitment in Delegated Bargaining

Abstract

In the context of (one‐sided) delegated bargaining, we analyze how a principal (a seller) should design the delegation contract in order to provide proper incentives for her delegate (an intermediary) and gain strategic advantage against a third party (a buyer). We consider situations in which there are both moral hazard and adverse selection problems in the delegation relationship and where the seller tries to gain strategic advantage by imposing a minimum price above which she pays the delegate a commission. It is shown that incentives and commitment are substitutes. A low‐type agent is given less discretion in dealing with the buyer and weaker incentives, while a high‐type agent is given more discretion and stronger incentives.

Financing Innovation with Unobserved Progress

“…Essentially, by contracting with an agent, the principal can change the agent's payoff in the bargaining game between the agent and the buyer, and obtain more commitment power. This idea similar to Judd (1987), Fershtman, Judd, andKalai (1991) and Cai and Cont (2004).…”

A Strategic Rationale for the Use of Sell–On Fees in European Sports

“…Therefore, the article is also related to the literature that analyzes how a bargaining process could be influenced in one's favor. For example, this could be achieved by means of strategic delegation (Cai and Cont, 2004;Fingleton and Raith, 2005) or, in the context of a supplier-buyer relationship, by vertical integration (Grossman and Hart, 1986;Hart and Moore, 1990).…”

Optimal Delegation in Nash Bargaining

“…Delegation in bargaining has been discussed in several papers. Cai and Cont (2004) also discuss the impact of a bargainer's marginal valuation of the bargaining result, but do not use this parameter as a strategic variable. Their model rather addresses the problem of moral-hazard on the side of the agent.…”