Group Decision and Negotiation

, Volume 22, Issue 3, pp 499–518 | Cite as

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

  • Andrew B. Whitford
  • William P. Bottom
  • Gary J. Miller
Article

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

Principal-agent theory Fairness Experiments 

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Copyright information

© Springer Science+Business Media B.V. 2011

Authors and Affiliations

  • Andrew B. Whitford
    • 1
  • William P. Bottom
    • 2
  • Gary J. Miller
    • 3
  1. 1.School of Public and International AffairsThe University of GeorgiaAthensUSA
  2. 2.John M. Olin School of BusinessWashington UniversitySt. LouisUSA
  3. 3.Department of Political ScienceWashington UniversitySt. LouisUSA

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