Information Alliance in Common Agency

Abstract

We provide a new rationale for common agency. In our model, there are two independent projects each of which is owned by a principal. Under exclusive agency, each principal uses a different agent, whereas under common agency, the same agent is used for both principals. Each project can succeed or fail after its agent covertly exerts effort. According to our analysis, the principals under exclusive agency have no incentive to share their information, whereas under common agency, sharing information is each principal's dominant strategy. We show that, when information can be shared, common agency dominates exclusive agency.

Keywords: Information Sharing, Moral Hazard, Common Agency

JEL Classification: D82, D86, L23