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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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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -803.

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Handle: RePEc:cor:louvrp:-803

Note: In : Review of Economic Studies, 55, 391-408, 1988
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