Abstract: This paper studies informational externalities between contracts. Two principals (for instance the governments of two neighbouring countries) deal with two different agents (for instance a railway company in each country). If, in the first period, an agent refuses the contract offered by his principal, the principal can offer a new contract in the second period. If pair A has not signed a first period contract but pair B has, information about the contract signed by pair B (and also, maybe, some exogenous information) is transmitted to pair A in between the two periods. As a consequence, because the types of the agents are correlated, there are informational externalities between the two principal-agent pairs. Inefficient equilibria with delay, i.e., with agreement in the second period, are obtained. In any equilibrium with delay only the low cost agent produces in the first period. I also show that there is always some production in the first period. More results under specific assumptions on the information structure of the game are provided. In particular, I identify some cases when the delays in the two pairs are strategic substitutes/complements.
Publication Year: 2010
Publication Date: 2010-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 4
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