Shinsuke Kambe

We study in what circumstance players alternate offers in bilateral bargaining. To examine this question, we suppose that players choose whether to take the initiative in each period. The player who tries to take the initiative is able to make an offer only when the other player does not. The probability that a player tries to take the initiative is referred to as the frequency of initiative taking. We assume that this is conditioned on mutually observable states and is, once chosen, unchangeable. When players make their frequency of initiative taking dependent on the identity of the latest proposer, the players alternate their offers (possibly with some stochastic delay). In contrast, when players always use the same frequency of initiative taking, or when players only distinguish odd-numbered from even-numbered periods for the frequency of initiative taking, both players constantly try to take the initiative. Consequently, an impasse arises.

We study how a principal uses her subjective evaluation of the agent's performance in an incentive contract. It is shown that the subjective evaluation can be used either 1) when there is no other information about the agent's performance and the principal is able to discard money, or 2) when the principal chooses between wage payment based on subjective evaluation by foregoing objective evaluation, and the one based only on the objective evaluation and when the subjective evaluation is sufficiently accurate. The principal pays a high fixed wage when her rating at the subjective evaluation is above a certain level. On the other hand, when it is below that level, she either pays a low fixed wage or obtains objective evaluation and pays based on its outcome.