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Repeated Contracting in Decentralised Markets

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  • Sambuddha Ghosh
  • Seungjin Han

Abstract

We consider a model where multiple principals repeatedly offer short-term contracts to three or more agents with private information. Under low discounting there exists a simple class of mechanisms that sustains all equilibrium allocations that could be generated by arbitrarily complex mechanisms. This equivalence result leads to a simple algorithm for computing equilibrium payoffs; this contrasts with the one-shot setting, where closed form expressions of such payoffs do not exist. Endogenous monitoring by agents weakens incentive compatibility relative to one-shot contracting; this lowers minmax values, expanding the set of equilibrium payoffs.

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Bibliographic Info

Paper provided by McMaster University in its series Department of Economics Working Papers with number 2012-03.

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Length: 54 pages
Date of creation: Apr 2012
Date of revision: May 2013
Handle: RePEc:mcm:deptwp:2012-03

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Keywords: relational contracts; repeated contracting; competing mechanisms; folk theorems; endogenous monitoring;

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