Microtheory Seminar Series. "Contracts From the Horse's Mouth: Subcontracting and Strategic Information", co-authored with Hyungmin Park
Published: 10 September 2024
17 September 2024. Dr Costas Cavounidis, University of Warwick
Dr Costas Cavounidis, University of Warwick
"Contracts From the Horse's Mouth: Subcontracting and Strategic Information", co-authored with Hyungmin Park
Tuesday, 17 September 2024. 16:00-17:30
Room 141B, Adam Smith Business School Building
Abstract
A principal incentivizes a team to work, when only the success or failure of a joint project is observable. The principal wishes that in every equilibrium all agents work rather than shirk. Rather than specifying individual rewards à la Winter (2004), she may subcontract to some agent, promising him a large sum on project success. That agent is empowered to divide the promise among agents as he wishes. Extensive-Form Rationalizability arguments show how subcontracting can eliminate strategic uncertainty. Simply, there are divisions a subcontractor intending to shirk will not choose. We show this makes optimal subcontracting cheaper than centralization when all agents are pivotal enough. More generally, our work illustrates the usefulness of structuring organizations to facilitate the flow of strategic information.
Bio
Dr Cavounidis is an Associate Professor at Warwick's Department of Economics.
For further information, please contact business-seminar-series@glasgow.ac.uk.
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First published: 10 September 2024
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