Symmetry in Bargaining and Efficient Contracts under Asymmetric Information

Abstract

This paper shows that in a Spencian agency model, contract determination through alternating-offer bargaining can generate efficient outcomes. This result holds in parameter regimes in which the screening equilibrium (where the uninformed principal makes a take-it-or-leave-it offer to the agent) and the signalling equilibrium (where the informed agent makes a take-it-or-leave-it offer to the principal) both predict inefficient contracts. More generally, this paper clarifies that in negotiations under incomplete information involving interdependent values, symmetry in the bargaining protocol can limit the extent of allocation inefficiencies and can lead to ex post efficient agreements. � 2017, � 2017 SAGE Publications India Pvt. Ltd.