Do Side Payments Help? Collective Decisions and Strategic Delegation

I investigate when a flexible bargaining agenda, where side payments are possible, facilitates cooperation in a context with strategic delegation. On the one hand, allowing side payments may be necessary when one party's participation constraint otherwise would be violated. On the other, with side payments each principal appoints a delegate that values the project less, since this increases her bargaining power. Reluctant agents, in turn, implement too few projects. I show that side payments are bad if the heterogeneity is small while the uncertainty and the typical value of the project are large. With a larger number of parties there may be a stalemate without side payments, but delegation becomes more strategic as well, and cooperation decreases in either case.