Moral Hazard and Bargaining over Incentive Contracts

Arbeitspapier

This paper analyses bargaining over an incentive compatible contract in a moral hazard framework. We introduce the Kalai-Smorodinsky bargaining solution and compare the outcome with the commonly applied Nash solution. Whether worker's effort is higher in the Nash or the Kalai-Smorodinsky solution depends on the agents. bargaining power. If agents have equal bargaining power, the contract in the Kalai-Smorodinsky solution yields a more efficient outcome and induces more effort. The social planner can mitigate inefficiencies arising in both bargaining solutions from the moral hazard problem and even achieve the first-best outcome by allocating the agents' bargaining power. If raising the worker's bargaining power is necessary to achieve the first-best solution, this increase must be higher in the Nash solution than in the Kalai-Smorodinsky solution.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 4920

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Cooperative Games ; Asymmetric and Private Information; Mechanism Design ; Labor Contracts
• Thema: incentive contracts ; moral hazard ; Nash bargaining solution ; Kalai-Smorodinsky solution ; bargaining power

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Dittrich, Marcus ; Städter, Silvio
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2014

Weitere Informationen

• Handle: http://hdl.handle.net/10419/102202
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ