Extracting Interaction-Created Surplus

This paper demonstrates that the economic surplus which agents produce in bilateral interactions is extractable by an outside party having sufficient initial resources. The third party achieves this outcome using a class of ‘‘exclusive-interaction’’ contracts. A basic extractability result is shown to be robust to several extensions: competition among outside parties, multiplicity of interacting agents, and a dynamic extension with repeated opportunities to interact. Finally, some connections with the economic intermediation literature are drawn. Journal of Economic Literature Classification Number: C79 Q 2000 Academic Press