| This thesis explores the theory of contracting and organizational design utilizing techniques of game theory. Traditional organizational theory treated organization as a black box, i.e., it responds to an input from outside in a certain way. Real organization, on the contrary, is full of internal interaction, which influences its overall performance. This dissertation attempts to deepen our understanding of organization by explicitly formulating the behavior of each organizational member. In each of the chapters, we examine some situation in an organization where two or more players are strategically interacting with each other. Chapter 1 analyzes the issue of renegotiation. A principal and an agent renegotiate a contract in order to incorporate unverifiable information. The agent not only responds to the contract but also anticipates future renegotiation when he chooses his effort level. In return, it gives the basis for the principal to utilize her information at the renegotiation. Chapter 2 deals with the problem of bargaining. It asks how a procedural negotiation can be done and shows that haggling can be a result of rational behaviors. In Chapter 3, we investigate the implication of managerial discretion in oligopoly. When managers are competing with each other, owners should allow their managers to choose the goals of their firms. It enables a manager to punish deviation and thus encourages cooperation. |
