Trading between agents for a better match

Lee, Frances (Zhiyun Xu)

International Journal of Industrial Organization, 2013, vol. 31, issue 5, 501-515

Abstract: This paper studies externalities that arise when agents can trade outcomes ex post. I show that when agents can trade outcomes ex post, principals are incentivized to contract with agents ex ante to reduce ex post transfers to outside agents with whom the principals do not directly contract. This causes principals to offer agents piece-rates that are inefficiently low and lower than the piece-rates they would offer if trading was not allowed. Although trading reduces an agent's effort and could increase the agent's outside option of rejecting a principal's ex ante contract, principals ultimately gain from allowing ex post trading because such trading results in outcomes that better match their tastes.

Keywords: Search agent; Multiple principals multiple agents; Externality; Moral hazard (search for similar items in EconPapers)
JEL-codes: D86 L20 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:31:y:2013:i:5:p:501-515

DOI: 10.1016/j.ijindorg.2013.09.002

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