Cooperative interim contract and re-contract: Chandler’s M-form firm

  • Tatsuro Ichiishi
  • Murat R. Sertel
Part of the Studies in Economic Theory book series (ECON.THEORY, volume 19)


At an interim stage players possessing only their private information freely communicate with each other to coordinate their strategies. This results in a core strategy, which is interpreted as an equilibrium set of players’ alternative type-contingent contract offers to their fellows. From this set of offers each player then chooses an optimal one and engages in some subsequent action, thus possibly revealing some private information to the others. Now with new information thus obtained from each other, the players play a new game to re-write their contract. In all of the optimization and gaming just described, Bayesian incentive compatibility plays a central role. These ideas are formulated within a model of a profit-center game with incomplete information which formally describes interaction of the asymmetrically informed profit-centers in Chandler’s multidivisional firm.


Private Information Incomplete Information Interim Period Grand Coalition Market Commodity 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Berliant, M.: On income taxation and the core. Journal of Economic Theory 56, 121–141 (1992)CrossRefMathSciNetMATHGoogle Scholar
  2. 2.
    Chandler, Jr., A. D.: Strategy and structure. Cambridge, MA: MIT Press 1962Google Scholar
  3. 3.
    Demange, G., Guesnerie, R.: Interim design of core mechanisms. Mimeo (1995)Google Scholar
  4. 4.
    Green, J. R., Laffont, J.-J.: Posterior implementability in a two-person decision problem. Econometrica 55, 69–94 (1987)MathSciNetGoogle Scholar
  5. 5.
    Harsanyi, J. C.: Games with incomplete information played by ‘Bayesian’ players. Management Science: Theory 14, 159–182 (Part I), 320–334 (Part II), 486–502 (Part III) (1967/1968)MathSciNetMATHGoogle Scholar
  6. 6.
    Ichiishi, T., Idzik, A.: Bayesian cooperative choice of strategies. International Journal of Game Theory 25, 455–473 (1996)CrossRefMathSciNetGoogle Scholar
  7. 7.
    Ichiishi, T., Idzik, A., Zhao, J.: Cooperative processing of information via choice at an information set. International Journal of Game Theory 23, 145–165 (1994)CrossRefMathSciNetGoogle Scholar
  8. 8.
    Ichiishi, T., Radner, R.: A profit-center game with incomplete information. Cahiers eco & maths 95.10, Université de Paris I — Panthéon-Sorbonne (1994); revised: September 1996Google Scholar
  9. 9.
    Koray, S., Sertel, M. R.: The welfaristic characterization of two-person revelation equilibria under imputational government. Social Choice and Welfare 9, 49–56 (1992)CrossRefMathSciNetGoogle Scholar
  10. 10.
    Koray, S., Sertel, M. R.: A multiplication of solution concepts, and pretend-but-perform implementation. Paper presented at the International Conference on Game Theory and Economic Applications, Bangalore, India, January 2–6, 1996Google Scholar
  11. 11.
    Radner, R.: Transfer payments and the core of a profit-center game. In: Dasgupta, P., et al. (eds.) Economic analysis of markets and games (Essays in honor of Frank Hahn), pp. 316–339. Cambridge, MA: MIT Press 1992Google Scholar
  12. 12.
    Rothschild, M., Stiglitz, J.: Equilibrium in competitive insurance market: An essay on the economics of imperfect information. Quarterly Journal of Economics 90, 629–649 (1976)Google Scholar
  13. 13.
    Scarf, H.: The computation of economic equilibria. New Haven, CT: Yale Univ. Press 1973Google Scholar
  14. 14.
    Scarf, H.: Notes on the core of a productive economy. In: Hildenbrand, W., et al. (eds.) Contributions to mathematical economics (in honor of Gerard Debreu), pp. 401–429. Amsterdam New York: North-Holland 1986Google Scholar
  15. 15.
    Sertel, M. R.: Workers and incentives. Amsterdam: North-Holland 1982Google Scholar
  16. 16.
    Sertel, M. R.: Lecture notes in microeconomic theory. Unpublished, Boğaziçi University, Istanbul (1990)Google Scholar
  17. 17.
    Wilson, R.: Information efficiency, and the core of an economy. Econometrica 46, 807–816 (1978)MathSciNetMATHGoogle Scholar
  18. 18.
    Yannelis, N. C.: The core of an economy with differential information. Economic Theory 1, 183–198 (1991)CrossRefMathSciNetMATHGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2005

Authors and Affiliations

  • Tatsuro Ichiishi
    • 1
    • 2
  • Murat R. Sertel
    • 2
    • 3
  1. 1.Department of EconomicsOhio State UniversityColumbusUSA
  2. 2.Center for Economic DesignBoğaziçi UniversityTurkey
  3. 3.Department of Economics, Faculty of Economic and Administrative SciencesBoğaziçi UniversityBebek - IstanbulTurkey

Personalised recommendations