Relational contracts when the agent's productivity inside the relationship is correlated with outside opportunities
AbstractAn agent can choose to bear personal costs to the principal's benefit. In return, the principal offers rewards. If this exchange is not contractible, typically repeated interaction will be required to sustain it. The novel feature of the analysis is that the agent's productivity inside the relationship is correlated with productivity outside. The paper derives the implications of this arguably realistic assumption for the feasibility of relational contracts and for agent selection by principals. It shows, for example, that optimal agent productivity is often non-monotonic in the importance, to the principal, of ensuring agent reliability. Applications of this framework in labor, management, and politics help organize some stylized facts.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8378.
Date of creation: May 2011
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions
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.:
- Glazer, A., 1999.
"Allies as Rivals: Internal and External Rent Seeking,"
99-00-10, California Irvine - School of Social Sciences.
- Glazer, Amihai, 2002. "Allies as rivals: internal and external rent seeking," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 155-162, June.
- Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
- William Fuchs, 2005.
"Contracting with Repeated Moral Hazard and Private Evaluations,"
Game Theory and Information
- William Fuchs, 2007. "Contracting with Repeated Moral Hazard and Private Evaluations," American Economic Review, American Economic Association, vol. 97(4), pages 1432-1448, September.
- William Fuchs, 2005. "Contracting with Repeated Moral Hazard and Private Evaluations," Discussion Papers 04-012, Stanford Institute for Economic Policy Research.
- William Fuchs, 2005. "Contracting with Repeated Moral Hazard and Private Evaluations," 2005 Meeting Papers 431, Society for Economic Dynamics.
- Jonathan Levin, 2000.
"Relational Incentive Contracts,"
01002, Stanford University, Department of Economics.
- Georgy Egorov & Konstantin Sonin, 2005.
"Dictators and Their Viziers: Agency Problems in Dictatorships,"
Economics Working Papers
0053, Institute for Advanced Study, School of Social Science.
- Georgy Egorov & Konstantin Sonin, 2011. "Dictators And Their Viziers: Endogenizing The Loyalty–Competence Trade‐Off," Journal of the European Economic Association, European Economic Association, vol. 9(5), pages 903-930, October.
- Georgy Egorov & Konstantin Sonin, 2005. "Dictators and Their Viziers: Agency Problems in Dictatorships," William Davidson Institute Working Papers Series wp735, William Davidson Institute at the University of Michigan.
- Egorov, Georgy & Sonin, Konstantin, 2004. "Dictators and Their Viziers: Agency Problems in Dictatorships," CEPR Discussion Papers 4777, C.E.P.R. Discussion Papers.
- Georgy Egorov & Konstantin Sonin, 2004. "Dictators and Their Viziers: Agency Problems in Dictatorships," Working Papers w0043, Center for Economic and Financial Research (CEFIR).
- Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
- Wagner, Alexander F., 2011. "Board independence and competence," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 71-93, January.
- Laing, Derek, 1994.
"Involuntary Layoffs in a Model with Asymmetric Information Concerning Worker Ability,"
Review of Economic Studies,
Wiley Blackwell, vol. 61(2), pages 375-92, April.
- Laing, D., 1990. "Involuntary Layoffs in a Model with Asymmetry Information Concerning Worker Ability," Papers 12-90-4, Pennsylvania State - Department of Economics.
- Sylvain Chassang, 2010. "Building Routines: Learning, Cooperation, and the Dynamics of Incomplete Relational Contracts," American Economic Review, American Economic Association, vol. 100(1), pages 448-65, March.
- Cicala, Steve & Fryer, Roland G. & Spenkuch, Jörg L., 2011.
"A Roy Model of Social Interactions,"
29150, University Library of Munich, Germany.
- Kristen Keith & Abagail McWilliams, 1995. "The wage effects of cumulative job mobility," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(1), pages 121-137, October.
- Munasinghe, Lalith & Sigman, Karl, 2004. "A hobo syndrome? Mobility, wages, and job turnover," Labour Economics, Elsevier, vol. 11(2), pages 191-218, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.