Dynamic Relational Contracts with Consumption Constraints
AbstractThis paper considers a long-term relationship between two agents who undertake costly actions or investments which produce a joint benefit. Agents have an opportunity to expropriate some of the joint benefit for their own use. The question asked is how to structure the investments and division of the surplus over time so as to avoid expropriation. It is shown that investments may be either above or below the efficient level and that actions and the division of the surplus converges to a stationary solution at which either both investment levels are efficient or both are below the efficient level.
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Bibliographic InfoPaper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2007/16.
Length: 31 pages
Date of creation: Dec 2007
Date of revision:
Note: The authors gratefully acknowledge the financial support of the Economic and Social Research Council (Research Grant: RES-000-23-0865). We also thank in particular Pierre Dubois and Francisco Gonzalez for helpful comments. An earlier version of this paper had the title "Self-enforcing contracts with action dynamics".
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
Other versions of this item:
- Tim Worrall & Jonathan P Thomas, 2008. "Dynamic Relational Contracts with Consumption Constraints," 2008 Meeting Papers 324, Society for Economic Dynamics.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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