Title: N-player costly contracting

Authors: Kjell Hausken; Galina A. Schwartz

Addresses: Faculty of Social Sciences, University of Stavanger, 4036 Stavanger, Norway. ' Department of Electrical Engineering and Computer Sciences (EECS), University of California, Berkeley, 337 Cory Hall, MC 1774, Berkeley, CA 94720-1774, USA

Abstract: We present a model of N-player contracting with transaction costs and endogenous property rights. Ex ante agreed surplus sharing can be altered ex post, after irreversible investments in production (characterised by the generalised Cobb-Douglas production function). The actual surplus sharing is determined ex post, after each player has chosen a costly action to alter the surplus sharing in his favour, thus incurring transaction costs. We demonstrate that when one player chooses the ex ante contract, each player's equilibrium share increases in his productivity and transaction cost parameters. We contrast our model with property rights theory (PRT) where ex ante contracts are not enforceable ex post.

Keywords: contracts; transaction costs; endogenous property rights; surplus sharing; generalised Cobb-Douglas production function; ex ante; ex post; property rights theory; PRT; conflict; production investment; N-player contracting.

DOI: 10.1504/IJCG.2012.045279

International Journal of Corporate Governance, 2012 Vol.3 No.1, pp.1 - 18

Published online: 10 Apr 2015 *

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