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The Multiperiod Principal-Agent Problem

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Author Info
Malcomson, James M
Spinnewyn, Frans

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Abstract

In repeated principal-agent models, long-term contracts can improve on short-term contracts only if they commit ei ther the principal or agent to a payoff in some future circumstances lower than could be obtained from a short-term contract negotiated if that circumstance occurs. The authors show that efficient contractin g under moral hazard alone does not require long-term commitment from that principal. Provided a short-term contract can punish the agent sufficiently (in a sense made precise), it requires no commitment fro m the agent either. Then linking payoffs in one period to outcomes in previous periods does not improve the trade-off between incentives a nd risk sharing. Copyright 1988 by The Review of Economic Studies Limited.

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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 55 (1988)
Issue (Month): 3 (July)
Pages: 391-407
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Handle: RePEc:bla:restud:v:55:y:1988:i:3:p:391-407

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  1. Dirk Krueger & Harald Uhlig, 2003. "Competitive Risk Sharing Contracts with One-Sided Commitment," Levine's Bibliography 666156000000000407, UCLA Department of Economics. [Downloadable!]
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  2. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June. [Downloadable!]
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  3. Emmanuelle Auriol & Régis Renault, 2007. "Status and Incentives," THEMA Working Papers 2007-01, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
    Other versions:
  4. Auriol, Emmanuelle & Renault, Régis, 2000. "Incentive Hierarchies," IDEI Working Papers 105, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2001. [Downloadable!]
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  5. Bandiera, Oriana, 2001. "On the Structure of Tenancy Contracts: Theory and Evidence from 19th Century Rural Sicily," CEPR Discussion Papers 3032, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. G. Dionne & M. Maurice & J. Pinquet & C. Vanasse, 2001. "The Role of Memory in Long-Term Contracting with Moral Hazard : Empirical Evidence in Automobile Insurance," THEMA Working Papers 2001-11, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
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  7. Auriol, Emmanuelle & Renault, Régis, 2000. "The Costs and Benefits of Symbolic Differentiation in the Work Place," IDEI Working Papers 101, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2002. [Downloadable!]
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