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The Multiperiod Principal-Agent Problem

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  • Malcomson, James M
  • Spinnewyn, Frans

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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Article provided by Wiley Blackwell 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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