Moral Hazard and Renegotiation with Multiple Agents

35 Pages Posted: 8 Oct 1998

See all articles by Shingo Ishiguro

Shingo Ishiguro

Nanzan University - School of Business Administration

Hideshi Itoh

Waseda Business School; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 12, 1998

Abstract

The purpose of the paper is to investigate contract renegotiation in multi-agent situations where risk averse agents negotiate a contract offer to the principal after they observed a common, unverifiable perfect signal about their actions. Renegotiation gives the agents gains from mutual insurance. Our main contribution is to show that renegotiation with multiple agents reduces the cost of implementing any implementable action pair down to the first-best level, even though the principal cannot observe the agents' actions. An important implication is that decentralization, in the sense of delegated negotiation and proposals from the agents, can be as effective as centralization that utilizes revelation mechanisms in unrestricted ways.

JEL Classification: D82

Suggested Citation

Ishiguro, Shingo and Itoh, Hideshi and Itoh, Hideshi, Moral Hazard and Renegotiation with Multiple Agents (September 12, 1998). Available at SSRN: https://ssrn.com/abstract=131454 or http://dx.doi.org/10.2139/ssrn.131454

Shingo Ishiguro

Nanzan University - School of Business Administration ( email )

18 Yamazato-cho
Showa-ku
Nagoya 466
Japan

Hideshi Itoh (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Waseda Business School ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku
Tokyo, Tokyo 169-8050
Japan

HOME PAGE: http://https://www.waseda.jp/fcom/wbs/en

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