SBE-RCUK Lead Agency: Sequential Bargaining with Externalities

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Overview:This proposal studies sequential contributions to public goods and joint projects in environments withtransactional frictions. The proposed research has three components. The first component focuses on thepresence of a principal as a source of coordination for the completion of a single public good or collectiveagreement. Motivating examples for this component include bankruptcy restructuring, lobbying/votebuying, technology adoption with network externalities, and corporate takeovers. The researchersconsider the effect on outcomes and welfare of strengthening agents' formal bargaining power relative tothe principal. The second component studies sequential contributions to competing public goods in a fullydecentralized environment (without a principal). Prominent applications include donations to alternativeorganizations, and collective effort in flexible environments, as in open source programming. Theresearchers study efficiency, delay, and the optimal organization of tasks and teamwork in this context.The third component reintroduces principals in the multiple joint projects environment. Motivatingexamples for this component are a congressional party leader leading the party's agenda over diverseissues, a university's development office seeking contributions, and donations with large donors. Theresearchers study how principals actively manage the intertemporal externalities generated by multipleprojects.Intellectual Merit:This proposal is related to the literature on contracting with externalities, delay in bargaining models withcomplete information, and private contributions to public goods. It complements these works by studyingcontributions to multiple projects and the role of principals in dynamic environments with frictions. To dothis, the PIs develop a family of closely related models of multilateral bargaining in the presence ofexternalities, where tasks and contracting are not undertaken by all agents simultaneously. Focusing onsequential bargaining highlights previously unexplored incentives for free riding and their implicationsfor delay and efficiency, while the existence of multiple joint projects generates new incentives forcoordination across projects. A key step in this proposal is to obtain a general tractable model to uncovercommon forces behind sequential contributions to multiple public goods in different setups. The proposedmodel is flexible, and the techniques developed can be used by future researchers concerned withincentives in organizations, charities, etc.Broader Impacts:This research encompasses a variety of applications, ranging from fundraising and donations, to teamproduction and legislative bargaining. The results from this proposal will help to better organize theseactivities in both government and the private sector. In terms of fundraising, for example, this proposalwill provide guidance about how to optimally bundle different public causes when there are multiplesmall donors and how to organize fundraising in the presence of large donors. In terms of effort in teams,it will shed light on how to organize team cooperation with multiple active projects. Results will also beapplicable to optimal organization for modern R&D companies, and open source software communities.The third component, for example, is particular relevant for the design of the institutions regulatingbankruptcy reorganizations. The project will be carried out by two researchers based in the UK and US.Since this proposal involves two different universities in two different continents, it will benefit from twodifferent institutional dissemination efforts in order to reach non-academic audiences and the generalpublic. Students will also be involved to discuss related literature, explore results of simplified modelsunder alternative assumptions, and aid in numerical computations.