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American Economic Journal: Microeconomics: Vol. 1 No. 1 (February 2009)

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Contracting with Third Parties

Article Citation

Baliga, Sandeep, and Tomas Sjöström. 2009. "Contracting with Third Parties." American Economic Journal: Microeconomics, 1(1): 75-100.

DOI: 10.1257/mic.1.1.75

Abstract

In bilateral holdup and moral hazard in teams models, introducing a third party allows implementation of the first best, even if renegotiation is possible. Fines paid to the third party provide incentives for truth-telling and investment. This result holds even if the third party is corruptible, as long as the grand coalition has access to the same contracting technology as any colluding subcoalition. (JEL D86, D82)

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Authors

Baliga, Sandeep (Northwestern U)
Sjöström, Tomas (Rutgers U)

JEL Classifications

D82: Asymmetric and Private Information
D86: Economics of Contract: Theory

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American Economic Journal: Microeconomics


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