The players in most economically important games are agents, not principals. This raises the possibility of the principal's setting a strategic compensation scheme. The central question addressed here is whether unobservable agency contracts can serve as precommitments. I argue that, in terms of Nash equilibrium outcomes, the answer is no when it is common knowledge that there exists a contract that "solves" the standard agency problems and that the principal and agent have the same preferences over income and effort. However, I also show that when these conditions are not satisfied (as they typically will not be), provisions of the agency contract enacted solely to deal with incentive and risk sharing problems of the agency relationship may have the secondary effect of credibly precommitting the agent in the game he plays with other agents. I also briefly consider the effects of contract renegotiation.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 22 (1991) Issue (Month): 3 (Autumn) Pages: 307-328 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.) This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.
Did you know? Each page is provided with a technical contact, in case something is not right with the supplied information. See under "publisher info".