Bargaining on Behalf of a Constituency

Abstract: We study bargaining situations in which one side consists of a group of people, who elect a representative to bargain with another party on their behalf. A two-phase bargaining model is developed in which a principal-agent problem between the constituency and its representative is embedded. With a natural refinement of sequential equilibrium, we characterize the set of equilibria and examine its efficiency properties. We show that agency problems in the delegation relationship rather than asymmetric information between the two bargainers can cause severe bargaining inefficiency. Extensions of the model and applications to union-firm bargaining are then discussed briefly.

Keywords: bargaining; delegation; principal-agent; delay

Bargaining on Behalf of a Constituency.pdf