Guido Stefano Merzoni

Reputazione, flessibilità e durata ottima dei contratti

We study the optimal length of a delegation contract in an incomplete information model where an agent plays a (possibly) repeated game on behalf of his principal. A short-term contract provides the principal with the flexibility to replace an agent who has proved not to be suitable for his job, while a long-term contract allows the agent to build a reputation for being trustworthy in his relationships with third parties. When contracts are renewable, the relationship between principal and agent may sometimes turn out to be stable even with short-term contracts. In this paper we show that this implies a non-monotonic relation between the importance of reputation and the optimal length of delegation contracts. In particular, in games where reputation is very important, short-term delegation contracts can be optimal. The implications of our analysis are illustrated by means of a few examples: the problem of credibility in the management of monetary policy, vertical relationships within firms, the strategic interactions between lenders and borrowers.

Strategic delegation in firms competing under incomplete information

Since the seminal paper by Coase (1937) the firm and the market have been recognised as alternative institutions through which to organise economic activity. However, there is not such a thing as “the firm”. Firms are different from each other and their internal organisation should not be taken as an exogenous variable. Furthermore, firms do not exist in isolation; they interact with each other within markets. The structure of the market the firm is operating in influences its internal organisation, and in particular the way in which the incentives for the different parties contributing to the firm activity are designed. This is, of course, especially true when the actions taken by one firm have an influence on the behaviour of its rivals, i.e. in oligopolistic markets, where firms interact strategically. In those circumstances firms can take decisions allowing them to commit to a particular course of action and gain a strategic advantage upon rivals.

Competition for delegates and the evolution of market structure

In previous chapters, we considered different settings where strategic delegation is used by principals to change the equilibrium outcomes of the delegated games. However, the payoff structure of such games is not changed by the act of delegation itself. In this chapter, I study the case where the act of delegation changes the delegated game’s payoffs, so that a sequence of delegation decisions have a dynamic effect, shaping the evolution of the strategic interaction that the principal is involved in. Principals compete between each other to acquire new delegates as they become available, and this competition modifies their relative strategic strength over time.

Delegation contracts’ observability and collusion

Co-operation is easier to attain, when the players are able to observe each other. Contracts, like other institutions, can be used by economic agents to become more observable, state their intentions and define their role. In this chapter, we analyse the possibility that incentive contracts for delegates could be used by principals to sustain co-operation, studying an application to Cournot oligopoly. It is shown that collusion is a sub-game perfect equilibrium of a Cournot duopoly game between two firms, where, as in the previous chapter, the choice of output is delegated by each owner to a manager, and the managers’ incentive schemes are observable and renegotiable.

Strategic delegation in the trade union

After having seen strategic delegation at work within firms, in this chapter we study how it may affect the organisation and the activity of the trade union.