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CONTRACT DELEGATION WITH BARGAINING
Author(s) -
THEILEN BERND
Publication year - 2013
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2011.00404.x
Subject(s) - delegation , bargaining power , principal (computer security) , decentralization , procurement , economics , microeconomics , power (physics) , market economy , computer science , management , physics , quantum mechanics , operating system
In the theoretical literature on contract delegation, it is assumed that the contractor has all the bargaining power when contracts are proposed to the subcontractee. In this case, the principal prefers centralized to decentralized contracting structures. This paper analyzes the consequences of relaxing this assumption. It is shown that when contracts are determined by bargaining, the principal might prefer decentralization to centralization. Furthermore, it is shown that this can happen even when subcontractees have very little bargaining power. The results explain, for example, the coexistence of centralized and decentralized contracting in public procurement. ( JEL D23, D82, L22)