Hidden information, bargaining power, and efficiency: an experiment

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dc.contributor.author Cabrales, Antonio
dc.contributor.author Charness, Gary
dc.contributor.author Villeval, Marie Claire
dc.contributor.other FEDEA
dc.date.accessioned 2012-01-11T16:23:53Z
dc.date.available 2012-01-11T16:23:53Z
dc.date.issued 2009-01-18
dc.identifier.uri http://hdl.handle.net/10016/12937
dc.description.abstract We devise an experiment to explore the effect of different degrees of bargaining power on the design and the selection of contracts in a hidden-information context. In our benchmark case, each principal is matched with one agent of unknown type. In our second treatment, a principal can select one of three agents, while in a third treatment an agent may choose between the contract menus offered by two principals. We first show theoretically how different ratios of principals and agents affect outcomes and efficiency. Informational asymmetries generate inefficiency. In an environment where principals compete against each other to hire agents, these inefficiencies remain. In contrast, when agents compete to be hired, efficiency improves dramatically, and it increases in the relative number of agents because competition reduces the agents’ informational monopoly power. However, this environment also generates a high inequality level and is characterized by multiple equilibria. In general, there is a fairly high degree of correspondence between the theoretical predictions and the contract menus actually chosen in each treatment. There is, however, a tendency to choose more ‘generous’ (and more efficient) contract menus over time. We find that competition leads to a substantially higher probability of trade, and that, overall, competition between agents generates the most efficient outcomes.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries DOCUMENTO DE TRABAJO
dc.relation.ispartofseries 2009-08
dc.relation.hasversion http://hdl.handle.net/10016/12905
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Experiment
dc.subject.other Hidden Information
dc.subject.other Bargaining power
dc.subject.other Competition
dc.subject.other Efficiency
dc.title Hidden information, bargaining power, and efficiency: an experiment
dc.type workingPaper
dc.subject.jel A13
dc.subject.jel B49
dc.subject.jel C91
dc.subject.jel C92
dc.subject.jel D21
dc.subject.jel J41
dc.subject.eciencia Economía
dc.rights.accessRights openAccess
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