The (Negligible) Benefit of Moving First: Efficiency and Equity in Principal-Agent Negotiations

Posted: 5 Jun 2005 Last revised: 20 Jan 2015

See all articles by Andrew B. Whitford

Andrew B. Whitford

University of Georgia - Department of Public Administration and Policy

Gary J. Miller

Washington University in St. Louis - Department of Political Science

William P. Bottom

Washington University in St. Louis - John M. Olin Business School

Date Written: 2013

Abstract

Like the first-mover in an ultimatum game, the principal is a first-mover with foreknowledge of the agent’s “rational” best response function. The solution to the “principal’s problem” is to choose a contract that maximizes the principal’s expected profit given the agent’s marginal efficacy and marginal effort cost. However, this paper reports experiments that show that principals make large concessions toward an equal division outcome. As in ultimatum games, agents are at times willing to punish principals who are perceived as being overly acquisitive. Variations in agent effort cost and effectiveness that should (theoretically) produce qualitatively different game-theoretic equilibria have little impact on outcomes.

Keywords: Negotiation, Agency Theory, Social Exchange

Suggested Citation

Whitford, Andrew B. and Miller, Gary J. and Bottom, William P., The (Negligible) Benefit of Moving First: Efficiency and Equity in Principal-Agent Negotiations (2013). Group Decision and Negotiation. 22(3):499-518., Available at SSRN: https://ssrn.com/abstract=736271 or http://dx.doi.org/10.2139/ssrn.736271

Andrew B. Whitford

University of Georgia - Department of Public Administration and Policy ( email )

Athens, GA 30602
United States
706-542-2898 (Phone)
706-583-0610 (Fax)

HOME PAGE: http://andrewwhitford.com

Gary J. Miller

Washington University in St. Louis - Department of Political Science ( email )

One Brookings Drive
Campus Box 1063
St. Louis, MO 63130
United States
314-935-5874 (Phone)
314-935-5856 (Fax)

William P. Bottom (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6351 (Phone)
314-935-6359 (Fax)

HOME PAGE: http://www.olin.wustl.edu/faculty/bottom.html

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