CONTRACT DELEGATION WITH BARGAINING

Authors

  • BERND THEILEN

    1. Theilen: Professor of Economics, Departament d’Economia and CREIP, Universitat Rovira i Virgili, Avinguda de la Universitat 1, E-43204 Reus, Spain. Phone +34-977-759-850, Fax +34-977-758-907, E-mail bernd.theilen@urv.net
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    • An earlier version of this paper has been presented at several seminars and the XXIII edition of the “Jornadas de Economía Industria.” I am very grateful to the participants in these meetings and especially to Matthias Dahm and Ricardo Flores-Fillol, a coeditor, and three referees for their comments and suggestions. Financial supports from the Spanish “Ministerio de Ciencia e Innovación” under projects SEJ2007-67580-C02-01 and ECO2010-17113 and the “Departament d’Universitats, Recerca i Societat de la Informació de la Generalitat de Catalunya” under project 2005SGR 00949 are gratefully acknowledged.


Abstract

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)

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